August 22, 2024/CSL Research
The Federal Government of Nigeria (FGN) through the Debt Management Office (DMO) on Monday 19 August 2024 opened for subscription its first domestic FGN US$ Bond. The issue, being the Series 1 (out of a total Programme size of US$2 billion) has a target size of US$500 million. The tenor of the Series 1 issue is five (5) years with a minimum subscription amount of US$10,000 and a multiple of US$1,000 thereafter. With regards to pricing, the Bond is priced at a coupon rate of 9.75% per annum. This we note was the average 90-day harmonic mean yield on the existing 8.375% US$1.25bn MAR 2029 and 7.143% US$1.25bn FEB 2030 FGN Eurobond instruments as of the close of 16 August 2024.
The proceeds from this issuance will be allocated to critical sectors of the Nigerian economy. Eligible participants include Nigerians residing both domestically and abroad, as well as foreign and institutional investors. The benefits of this offer include, but are not limited to: Stable and fixed US dollar-denominated returns over the medium term, competitive returns compared to foreign exchange (FX) savings held abroad, exemptions from Corporate Income Tax (CIT), Personal Income Tax (PIT), and Capital Gains Tax, listing on the Nigerian Exchange (NGX) and FMDQ Securities Exchange, providing a liquid secondary market unlike Euroclear, eligibility for inclusion in pension fund portfolios and liquidity status granted by the Central Bank of Nigeria (CBN), making the security eligible for inclusion in the calculation of liquidity ratios for banks in Nigeria.
The offer is anticipated to be fully subscribed, despite conditions such as the prohibition on using US$ cash to purchase the instrument, except for funds that have been deposited in a domiciliary account for at least 30 days before the offer date. Finally, while this issuance provides a temporary solution to address foreign exchange (FX) liquidity challenges and increase US$ inflows, it is important to note that it also adds to the government’s overall public debt burden. This from our estimates will sit above ₦133.59 trillion post-issuance with the external debt component pushing above ₦63.92 trillion – c.47.85% of total public debt vs. 46.05% at Q1 2024 end (exchange rate assumption of US$1 to ₦1,500; and excluding bilateral
loan deals between March 2024 and now).
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