The Domestic FGN US Dollar Bond is a new financial instrument introduced by the Federal Government of Nigeria through the Debt Management Office (DMO).
What is the Domestic FGN US Dollar bond?
It is a foreign currency-denominated debt instrument issued locally in Nigeria and designed to appeal to both local and international investors. As a bond, it is part of the Foreign Currency-Denominated Financial Instrument Local Issuance Programme (Order No. 16 of 2023). The bond was open for subscription until the 30th of August, 2024.
In this article, we will explore the concept of the Domestic FGN US Dollar bond.
Purpose of the Bond
The primary purpose of the bond is to raise funds to support critical sectors of Nigeria. The funds will be used to execute projects recommended by the Ministry of Finance and approved by the President of Nigeria. The approved projects will be overseen by the National Assembly.
Bond Issuer and Programme Size
The bond is issued by the Federal Government of Nigeria, with a total programme size of $2B. The bond issuance is part of a larger bond programme, which will be conducted in different series, with each series having its own terms.
Series 1
Series 1, with a target of $500M, has a 5-year tenor and offers a 9.75% annual interest (coupon) rate, paid semi-annually.
The bond is open to:
- Nigerians living in Nigeria
- Nigerians living abroad with foreign currency savings
- Foreign and institutional investors
Steps to Investing
- Investors can apply by submitting physical forms at designated financial institutions or by electronic means via an e-portal.
- The minimum investment is $10,000, with subsequent investments in multiples of $1,000.
- Cash is not accepted; investments must be made via online payments.
- Investors using funds from domiciliary accounts must ensure the funds have been in the account for at least 30 days before the application.
Tax Benefits
Income from the bond is exempt from Companies Income Tax, Personal Income Tax, and Capital Gains Tax. The bond will have significant appeal for pension fund managers, as it is eligible to be included in pension fund portfolios.
Trading and Liquidity
The bonds can be traded on the Nigerian Exchange (NGX) and the FMDQ Securities Exchange after listing. Investors will have the flexibility to sell their bonds before maturity once listed. The bond can also be used in the calculation of liquidity ratios for banks, as it has been granted liquid asset status by the Central Bank of Nigeria (CBN).
Income Payments
Both the principal and interest payments will be made in US dollars, protecting the investment against currency fluctuations.
Oversubscription and Refunds
In the case of oversubscription, the DMO may seek approval to accept more investments. If this approval is not granted, excess funds will be refunded to investors.
Legal Compliance
The bond’s validity has been confirmed by a legal opinion from the Attorney General, and it complies with all Nigerian laws, ensuring investors can be confident in its security.
Eurobonds vs Domestic FGN US Dollar
BondEurobonds are traded internationally, while the Domestic FGN US Dollar bond is traded locally.The Domestic FGN US Dollar bond is more accessible, requiring a minimum investment of $10,000, whereas Eurobonds typically require a minimum investment of $200,000 (20 times the minimum of the Domestic FGN US Dollar bond).
In essence, the Domestic FGN US Dollar bond offers a great opportunity for investors to earn returns in US dollars while also supporting the Nigerian economy.
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