Nigeria’s $500m bond oversubscribed

There are indications that the Nigerian diaspora bond was 100 percent oversubscribed to about $1billion.

This is even as subscribers are set to receive allocation this week.

The five-year bond, which carries a 9.75 percent interest rate, is the first tranche of a planned $2 billion issuance aimed at bolstering the Nigerian economy.

According to the offer documents, the minimum investable amount is $10,000, with additional increments of $1,000 thereafter and the offer was opened for investors on August 19 and closed on August 30.

This structure is intended to enable wider participation among investors both within Nigeria and the diaspora.

On the application form, it is stated that payment shall only be made through the Nigerian banking system and electronic transfers into the designated accounts to be provided upon allotment.

“No cash deposits will be accepted under this transaction,” the form said.

According to Wale Edun, Minister of Finance and Coordinating Minister of the Economy, the Federal Government aims to raise a total of $2 billion from the domestic dollar bond programme. However, it only issued $500 million in its series 1 programme.

Nigerians and non-Nigerians resident in Nigeria, Nigerians in the diasporaand qualified institutional investors are eligible. Pension funds can also invest in the bond.

Professor of Capital Market at the Nasarawa State University and President, Association of Capital Market Academics of Nigeria, Professor Uche Uwaleke, said there were expectations that the pricing of the bond would be attractive enough to lure a broad category of prospective investors.

He said a high demand for the debut bond would embolden the government to further explore the domestic dollar bonds market which will reduce government’s incursion into the naira bond market, thereby freeing up capital for the private sector.

While describing the $500 million, five-year tenured bond as ambitious, Uwaleke, who preferred shorter tenor and size, said the bond issuance holds a lot of promise to investors and the economy in general in several ways.

According to him, the inaugural foreign exchange (forex) bond provides an opportunity to earn risk-free return on investments given that dollar deposits with banks attract little or no interest. The interest payable to bondholders is exempt from income tax.

He said the issuance would afford retail and institutional investors the opportunity to diversify their portfolios while providing an alternative cheaper source to meeting government’s financing needs in a period where the cost of servicing domestic debt is made more expensive by hawkish monetary policy.

“It should help to strengthen the naira since the dollars raised will be available for intervention in the forex market. It promises to deepen the capital market following increased liquidity in the market on the back of the new asset class. Like the debut Eurobond issuance in 2011, the maiden domestic dollar bond is expected to open up local issuance of similar bonds by companies and sub-nationals

“All said, the benefits of the domestic dollar bonds outweigh the costs. It is expected that the net proceeds will be ring-fenced and invested in critical sectors of the economy such as agriculture, education and health,” Uwaleke said.

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