Investors exceed the subscription limit for the FGN $500 million bond.

Experts predict that 100% of the recipients will receive their final allocation this week.
Significant oversubscription was seen for Nigeria's first domestic bond denominated in foreign currency, demonstrating investors' faith in the nation's economic prospects.

Over the weekend, it was discovered that a large number of both domestic and foreign investors subscribed for the $500 million medium-term bond.

It concluded as a historic deal that opened up a new foreign exchange (forex) window for businesses and governments.

This week's final allotment results are anticipated from the Debt Management Office (DMO), which is in charge of managing and issuing government debt.

The offer book was estimated to be worth $1 billion by those who were aware of the tentative allotments.

An analysis of the subscription pattern revealed that both domestic institutional investors and individual retail investors had a significant appetite.

There existed appreciable subscriptions by the diaspora community and foreign investors, although the stringent requirements within the week-long offer period appeared to have moderated subscriptions by retail diaspora investors.

An investment banking source said subscriptions were more than $800 million while other sources said the success level of the bond was around $1 billion, 100 per cent above its initial offer size of $500 million.
Sources claimed that the DMO will abbreviate the cycle of tranches in the bond's $1 billion overall program size by raising the final issuance size in order to capitalise on the strong confidence.

The first tranche of the $2 billion bond registered with the Securities and Exchange Commission (SEC) by the Federal Government is the $500 million Series I Domestic FGN US Dollar Bond, which has a five-year maturity.

Because of the bond's structure, the government is able to take oversubscriptions up to the $2 billion program cap.

The $500 million bond's success, according to industry sources, will create a new avenue for governments and businesses to raise finance, with the first sovereign bond acting as a model for future issues.
They mentioned how the Federal Government's groundbreaking offerings in those markets led to the enormous success of the growth of the corporate Eurobonds, Sukuk, non-interest issuance market, and green bond market.

According to sources, investors were optimistic that Nigeria's economic reforms would continue, as seen by the substantial oversubscription of the $500 million bond, which had a five-year tenor and a coupon of 7.75 percent annually.

After the application list opened two weeks ago, The Nation reported that, given the preliminary book building and overall investor appetite, the debut domestic dollar bond was expected to be oversubscribed.

The historical significance and advantages of the new bond issue were widely acknowledged by experts.

Managing Director of Financial Derivatives Company (FDC), Mr. Bismarck Rewane, said at the weekend that the successful issuance of the bond will bring significant benefits to the naira.
"The CBN's reintroduction of the Retail Dutch Auction System, which is anticipated to hold another auction in September, along with the bond issuance proceeds will stabilise the naira."

"Price pressures will be relieved and inflation will slow down for the remainder of 2024 if the naira remains stable."

"Base effects, an import duty waiver, and the harvest season will support the slowdown in inflation," Rewane said.

According to Mr. Olatunde Amolegbe, Managing Director of Arthur Steven Asset Management, Nigeria is in an odd situation where a large portion of its population holds large dollar deposits in domiciliary accounts that yield no income and make little to no contribution to the country's economy.

According to him, the bond offers an opportunity for those ostensibly inert monies to be invested and generate profitable return while still enjoying the hedging advantage of holding a reserve currency.

“This instrument also provides the Federal Government the much needed dollar liquidity for the forex market which hopefully will lead to the strengthening of the naira.
“This could ultimately have a positive knock-on effect on inflation and consequently interest rates.

“This is also a positive move for the capital markets as it increases product variety and liquidity within the market,” Amolegbe said.

Managing Director, AIICO Capital, Dr Femi Ademola, said the domestic foreign currency-denominated bond is in fulfilment of the promise by the government to attract funding from Nigerians in the diaspora.

According to him, the bond allows Nigerians to invest their foreign currency in dollars, thus removing the fear of a loss of value due to naira devaluation.

“The success of this issuance will be a confidence boost for the country and the current administration.

“It would also allow the government to channel the remittances into more profitable ventures for investors.
The financial market will be impacted in a manner similar to that of the Eurobond issue.

Ademola stated, "The instruments would be tradeable in the market thus deepening the market further."

The domestic dollar bond will allow holders of domiciliary accounts at Nigerian banks to earn a respectable income on their often non-interest yielding deposits, according to Mr. David Adonri, Managing Director of HighCap Securities.

Since interest payments from the bond will stay in the local economy, he claimed it will lessen capital flight.

For domestic investors who have been itching to make local investments in assets denominated in dollars, it is typically a desirable avenue for investing. The nation's capital market will grow as a result, according to Adonri.

In addition to bearing 9.75 percent interest annually, the $500 million bond also qualifies for tax exemption for pension funds and other investors.

It has also been granted liquid assets status by the Central Bank of Nigeria (CBN), implying that banks can use such investments in the calculation of their liquidity ratio (LR).
Trustees and administrators of pension funds may also purchase bonds with them. Because Nigeria's sovereignty and credit serve as a guarantee, it is regarded as risk-free.

Additionally, the Federal Government committed irrevocably to never convert or repay the principle and interest on the $500 million bond in naira.

In accordance with the terms of the $500 million bond's Trust Deed, the Federal Government guaranteed to uphold the bond's dollar-based issuance model, paying the coupon and principal in the same currency as the bond was issued.

The legal agreement between the Federal Government and the subscribers of the $500 million bond is known as the Trust Deed, and it is enforceable and binding.
Initial book-building reports had described the bond as extremely attractive and said that there were good chances of a significant oversubscription.

According to sources in the market, the pricing matched the current yield of Nigeria's Eurobond with a comparable tenor.

The current yield on Nigeria's three- to five-year Eurobond ranges from 9.662 to 10.03 percent; hence, the midpoint pricing of 9.75 percent is deemed appealing.

Most analysts believe that the bond has the potential to draw in a sizable number of overseas investors.

When weighed against yield in the US, Germany, Japan, and the UK, the pricing appeals to overseas investors.

A top investment banker had stated, "The risk premium for Nigeria's sovereign risk is adequate."

According to sources, there was notable enthusiasm for the first sovereign dollar-denominated domestic bond, with interests cutting across domestic institutional and individual investors, portfolio funds and the Diaspora community.

“I think it’s possible if you look at the universe of potential investors that will be eligible to participate. There is a report that says the dollars held in domiciliary accounts in Nigerian banks are in excess of $20 billion. This represents potential investors.

“There are also lot of very active foreign-currency-denominated mutual funds that are also potential investors.

“There are also Nigerians in the diaspora who are currently earning less than nothing on their investments that will find investing in this dollar bond quite attractive in terms of returns.

“The foreign portfolio investors are also not precluded from investing, and this should also boost patronage.

“So, the chance of an oversubscription is possible,” said a senior investment banker with a speciality in debt issuances.

Another source said the emerging macroeconomic outlook is encouraging to investors, who may seek the opportunity of the dollar issuance to lock in value.

Tight subscription guidelines were imposed by the government to protect the bond from money laundering and other criminal activities.

As per the guidelines, in addition to providing information on the country of incorporation and residency classification, all corporate or institutional investors must also sign their corporate applications with duly authorised officials and bear the seal of the corporate body.

The National Pension Commission (Pencom) requirements on the custody of pension assets must be fol