The federal government of Nigeria has launched a $500 million FX-denominated domestic bond.
According to industry watchers, this marks a significant milestone in the country’s economic reform and development journey.
Mr. Wale Edun, minister of Finance and Coordinating Minister of the Economy, unveiled the Series I USD500 million Domestic FGN US Dollar Bond in Lagos, Thursday.
Edun stated that the launch was a bold step towards economic transformation to attract both local and international investors.
Offer for the bond, which were expected to open up a new market segment for governments and companies, will commence on Monday.
Edun, who launched the bond, stated, “This historic initiative is aimed at raising a minimum of $500 million from both local and international investors, marking a significant step in Nigeria’s ongoing economic reform and development efforts.”
He said the bond issuance was set to leverage the Nigerian financial system, including the Securities and Exchange Commission (SEC), the banking system, and investment bankers.
The minister added that the bond represented a critical effort to attract foreign currency held by Nigerians abroad, as well as other international investors who believe in the macroeconomic reform initiatives spearheaded by President Bola Tinubu.
He explained that the financial market thrived on creativity and innovation, and stated that it was essential to encourage investors to participate in the strategic opportunity.
Edun said the new bond initiative was another crucial step to bolster Nigeria’s economy.
He underscored the importance of dollar funding, particularly in stabilising the exchange rate, which he said was vital for the country’s economic stability.
Addressing the challenges faced by African nations in the international capital markets, the minister explained that the rating systems often did not favour the continent.
He assured that Nigeria aimed to take the lead.
With the historic bond launch, the minister expressed optimism that Nigeria was poised to become a continental financial hub, where other African countries could raise capital and drive economic growth.
According to the auction circular of the $500 million bond, the federal government hoped to double its offer amount as it targeted $1 billion in subscriptions through the bond auction.
The bond, the first of its kind in the country’s financial system, is a five-year bond with a bi-annual interest payment in currency of issuance, and principal payment at the expiration of the tenor.
The bond will be listed on the Nigerian Exchange (NGX) and FMDQ Securities Exchange, providing liquidity and accessibility to a broad range of investors.
There are indications that the government could raise as much as $2 billion, the total size of the approved scalable bond issuance programme.
Many financial industry watchers believe the bond comes with a plethora of advantages, particularly underscoring the point that the success of its issuance will be a confidence boost for the country and the current administration.
While it will allow the government to channel the remittances into more profitable ventures for investors, they argue that in terms of impacting the financial market, the effect will be the same as the issuance of Eurobonds.
The domestic dollar bond will enable domiciliary account holders to earn good income on their generally non-interest yielding deposits in Nigerian banks, as well as reduce capital flight since interest payments will be retained in the local economy.
Some other benefits include providing a platform for those seemingly idle funds to be invested and get good returns while still enjoying the hedging advantage of holding a reserve currency.
They also suggest that the instrument provides the federal government the much-needed dollar liquidity for the forex market with the expectation that it will lead to the strengthening of the naira.
Experts are equally looking at its potential of a positive knock-on effect on inflation and consequently interest rates.
While highlighting the positive outcomes already being witnessed from the current economic policies, Edun stated that government revenue and expenditure had been significantly revamped, while the trade balance was improving. He alluded to government’s efforts in revitalising the agricultural sector, which he said was taking a new and promising direction.
Edun pointed to the present administration’s successful interventions to reduce inflation and poverty, such as the removal of levies on food imports and the direct transfer of funds to the most vulnerable citizens.
A statement issued by Mohammed Manga, director, Information and Public Relations, Federal Ministry of Finance, said, “The minister’s visionary leadership and commitment to innovation have set the stage for a brighter economic future, especially now that Nigeria has taken the lead in harnessing diaspora savings and driving macroeconomic reforms, the country is well on its way to becoming a continental financial hub, driving growth and prosperity for generations to come.”
