Domestic bonds a success
The international investment community has lapped up Nigerian bonds. The oversubscription of the first issuance this year in February and the tight pricing of the second issuance in March is testimony to the high demand for these bonds.
But the success of Nigerian bonds is not restricted to overseas investors. Domestic investors have responded quite enthusiastically to fixed income offerings as well.
In its first of its kind offering to domestic investors, Nigeria (NGE) raised 2.07 billion naira (~$6.6 million) from a two-year savings bond specially targeted towards retail investors. Alike their global counterparts, the domestic bonds have also been issued to bridge the budget gap. Of the expected budget deficit of 2.36 trillion naira in 2017, the government aims to fund half the amount via these domestic bond sales.
The bonds are quite attractive with a coupon of 13.01%. The high inflation, as shown in the graph, is responsible for this attractive interest rate.
Broadening the base
Via domestic bond offerings, the government can widen the country’s funding base. According to the Debt Management Office (DMO), these bonds would be offered every month for purchases and will have a maximum subscription of 50 million naira. An investor requires minimum 5,000 naira as investment to subscribe to the bonds followed by purchases in multiples of 1,000 naira.
Further, in order to increase the liquidity of the bond, the DMO had the Series 1 of the Federal Government of Nigeria Savings Bond listed on the Nigerian Stock Exchange (NSE). Providing further details about the bonds, Director-General of the DMO, Dr. Abraham Nwankwo, said that the tenors of the monthly offering would be two or three years and they will pay interest on a quarterly basis.
In terms of retail participation, he informed that out of the 2,555 subscribers in the March offering, over 95% of the applicants were individual investors.
The next tranche would go on sale on April 3.
Apart from the bond issuances so far in this year, Nigeria has plans to launch a $300 million Diaspora bond, targeted at citizens abroad. There are also plans to launch a “green bond” worth 20 billion naira (~$66 million) in April.
But successful bond sales notwithstanding, Nigeria continues to face massive challenges. Let’s look at them in the next article.