An industry analyst and General Manager, Treasury Services, Consolidated Discount House Limited, Mr. Bolanle Okunubi, has projected that the Federal Government’s $1bn Eurobond offer expected to be issued before the end of this year to fund power projects will be well subscribed, like its previous offers.

Okunubi, who spoke to journalists in Lagos, said investing in bonds was less risky and there was high level of confidence in Nigeria’s sovereign bonds.

Nigeria issued a $500m 10-year Eurobond two years ago, which was oversubscribed, with investors spanning 18 countries from Europe, the United States, Asia and Africa.

According to the analyst, the one-week roadshow to Britain, Germany and the United States, which started on June 19, is a welcome development.

The meeting is being led by the Finance Minister, Mrs. Ngozi Okonjo-Iweala, and other senior government officials from the Debt Management Office.

He described a bond as a loan or debt security. According to him, the investor or holder of the bond is the lender while the issuer remains the borrower.

Okunubi said, “When you purchase a bond, you are lending money to the issuer, who in return promises to pay you a specified rate of coupon during the life of the bond and to repay the face value of the bond when it matures. Bonds are ‘fixed-income securities’ because the amount of income the bond will generate each year is ‘fixed’ or set when the bond is sold.”

Whether one is holding a “risk-free” securities (sovereign bond) or corporate bonds, there are some risks that are associated with investing in bonds. Risk, in this context, means the possibility of losing some or all of the original investment. It is by chance that an investment’s actual return will be different from what is expected.

Okunubi advised that since risks could not be entirely eliminated, bond holders are expected to identify and manage associated risks.

An executive of CDL, Mr. Emmanuel Ebuk, described risk as the divergence between anticipated outcomes and actual results.

He said, just like other investors, those investing in bonds would have to face and manage some of the inherent risks.

He identified them as market risks, which occurred as a result of losses from the movements in financial market variables.

According to him, equity risk is the risk that stock prices will change; interest rate risk that interest rates will change; while currency risk is the fear that foreign exchange rates will change, among others.

He also said strategic risk was the current and prospective impact on earnings or capital arising from adverse business decisions, improper implementation of decisions, or lack of responsiveness to industry changes.

He said strategic risk is the risk associated with the financial institution’s future business plans and strategies. This risk category includes plans for entering new business lines, expanding existing services through mergers and acquisitions, and enhancing infrastructure, among others.

Source: Punch (by Oyetunji Abioye)