The Federal Government of Nigeria (FGN) has introduced a Domestic US Dollar Bond, an innovative financial instrument designed to attract both local and international investors.
This bond, part of the government’s financing initiatives and will remain open until August 30, 2024, giving investors a sufficient window to participate in this offering.
This article aims to provide a comprehensive overview of what the bond entails, its purpose, and how investors can participate.
What is the Domestic FGN US Dollar Bond?
The Domestic FGN US Dollar Bond is a debt instrument issued by the Federal Government of Nigeria under the Debt Management Office (DMO) framework.
- This bond is part of a broader initiative to implement a foreign currency-denominated financial instrument locally.
- The bond program was established under the Foreign Currency-Denominated Financial Instrument Local Issuance Programme and related matters order No. 16 of 2023.
Purpose of the Bond
The primary purpose of this bond is to raise funds for critical sectors of the Nigerian economy.
- The proceeds from the bond will be used to finance various projects that have been approved by the President of Nigeria, based on recommendations from the Honorable Minister of Finance and Coordinating Minister of the Economy.
- These projects are essential for the country’s development and are subject to appropriation by the National Assembly.
Issuer and Programme Size
The issuer of the bond is the Federal Government of Nigeria. The bond is being issued as part of a larger programme, which has a total size of US$2 billion.
This programme will be conducted in multiple series, with each series offering different terms and conditions.
Series 1 Details
The first series under this programme, referred to as Series 1, has a target size of up to US$500 million.
The bond has a tenor of five years, meaning that it will mature five years from the date of issuance. Investors in Series 1 will enjoy a coupon rate of 9.75% per annum, paid semi-annually.
Who Can Invest?
The bond is open to a wide range of investors, including:
- Nigerians residing in Nigeria; Nigerians in the diaspora who have foreign exchange (FX) savings abroad; and
- Foreign and institutional investors. This inclusiveness is part of the government’s strategy to attract a broad spectrum of investors and provide an opportunity for Nigerians, both at home and abroad, to contribute to the country’s economic development.
Subscription and Minimum Investment
Investors can subscribe to the bond electronically via an e-portal or by submitting physical application forms to any of the designated Issuing Houses, Financial Advisers, and Receiving Banks.
- The minimum subscription amount is $10,000, with additional investments to be made in multiples of $1,000 thereafter.
- For those interested in using funds from their domiciliary accounts, it’s important to note that the funds must have been in the account for at least 30 days before the application date.
- Unfortunately, subscriptions cannot be made in cash; instead, electronic transfers to designated accounts are required.
Tax Benefits and Eligibility for Pension Funds
One of the attractive features of the Domestic FGN US Dollar Bond is that the investment income is exempt from Companies Income Tax, Personal Income Tax, and Capital Gains Tax.
- This tax exemption enhances the bond’s appeal, particularly for investors seeking tax-efficient investment options.
- Additionally, the bond is eligible for inclusion in pension fund portfolios, making it a viable option for pension fund managers looking to diversify their investments.
Trading and Liquidity
Investors will have the flexibility to trade their bonds on the secondary market once they are listed on approved exchanges such as the Nigerian Exchange (NGX) and the FMDQ Securities Exchange.
- This liquidity is crucial for investors who may need to sell their bonds before maturity.
- Furthermore, the Central Bank of Nigeria (CBN) has granted liquid asset status to the bond, meaning it can be included in the calculation of liquidity ratios for banks in Nigeria.
- This designation adds an additional layer of security and attractiveness to the bond.
Principal and Interest Payments
The principal and interest payments on the bond will be made in US Dollars, as specified in the Trust Deed. This feature distinguishes it from traditional Naira-denominated bonds, which are paid in Naira.
The interest on the bond will start accruing from the issue or settlement date, providing investors with a predictable income stream.
Oversubscription and Refunds
In the event of oversubscription, the DMO may seek necessary approvals to accommodate the extra demand.
- However, if these approvals are not obtained, any excess funds will be refunded to the subscribers’ accounts from which the original subscription was made.
- Standard corresponding bank charges may apply during the investment process.
Compliance and Legal Framework
The bond issuance complies with all relevant governing laws, as confirmed by a legal opinion from the Honourable Attorney General and Minister of Justice of the Federation.
This compliance ensures that the bond issuance is legally sound and provides investors with confidence in the security of their investment.
Eurobonds vs. Domestic FGN US Dollar Bonds
While Eurobonds are typically issued in larger lot sizes (usually a minimum of US$200,000) and are listed on international exchanges like Euroclear, the Domestic FGN US Dollar Bond is more accessible to retail investors with a minimum investment of $10,000.
These bonds are listed on local exchanges like NGX and FMDQ, making them more accessible to Nigerian investors.
Finally,
The Domestic FGN US Dollar Bond represents a significant opportunity for investors looking to participate in the Nigerian economy while earning returns in US Dollars.
- With its competitive interest rate, tax benefits, and eligibility for trading on local exchanges, this bond offers a unique investment avenue for both local and international investors.
- As the programme unfolds, it is expected to attract significant interest, contributing to the overall economic growth of Nigeria.
- Investors interested in participating should act promptly, ensuring that all necessary documentation, including BVN and NIN for Nigerians in the diaspora, is in place.
The DMO’s website and designated financial institutions provide further details and application forms for those looking to take advantage of this opportunity.
