The Debt Management Office (DMO) of Nigeria has announced a substantial bond auction for January 2025, aiming to raise N450 billion (approximately $962 million USD at current exchange rates) to finance the country’s fiscal deficit and support crucial infrastructure development. This ambitious target significantly surpasses the N360 billion offered in January 2024 and the N120 billion from December 2024, indicating the government’s growing reliance on domestic borrowing amidst global economic uncertainties. The auction, scheduled for January 27, 2025, with settlement on January 29, 2025, offers a range of investment options designed to attract a diverse investor base, including institutional investors like pension funds and individual investors seeking stable returns.
The bond offering comprises three distinct categories, each catering to different investment horizons and risk appetites. Firstly, a reopened five-year bond, originally issued in April 2029, with a 19.30% coupon rate, targets to raise N100 billion. This offers investors a relatively short-term investment with a healthy yield. Secondly, a reopened seven-year bond, initially issued in February 2031, carries an 18.50% coupon rate and aims to raise N150 billion. This provides a middle-ground option for investors seeking a balance between yield and investment duration. Lastly, a newly issued ten-year bond, the FGN January 2035 bond, targets N200 billion, offering a longer-term investment opportunity with a competitive yield, though the coupon rate for this bond was not explicitly stated in the provided information.
These bonds are structured with investor accessibility and attractive features in mind. They are offered in units of N1,000, with a minimum subscription of N50,001,000, and subsequent subscriptions can be made in increments of N1,000, making them accessible to a wider range of investors. Semi-annual interest payments provide a regular income stream, enhancing their appeal to income-seeking investors. Furthermore, the bonds are fully redeemable upon maturity, guaranteeing the return of principal along with accrued interest. Tax exemptions under the Company Income Tax Act and the Personal Income Tax Act further sweeten the deal, particularly for institutional investors like pension funds, seeking tax-efficient investment vehicles.
The government has ensured the bonds’ marketability and liquidity by listing them on the Nigerian Exchange Limited and the FMDQ OTC Securities Exchange. This dual listing provides investors with easy access to trading platforms, enabling them to buy and sell the bonds as needed, thereby enhancing their liquidity. The recognition of these bonds as liquid assets by financial institutions allows them to be used to meet liquidity ratio requirements, further increasing their attractiveness to banks and other financial entities. The backing of the full faith and credit of the Federal Government of Nigeria, charged upon the general assets of the country, provides a strong layer of security, minimizing the risk of default and bolstering investor confidence.
To streamline the subscription process, the DMO has designated several authorized Primary Dealer Market Makers (PDMMs), including major Nigerian banks such as Access Bank, Zenith Bank, Stanbic IBTC Bank, and United Bank for Africa. These institutions act as intermediaries between the government and potential investors, facilitating the subscription process and providing guidance to interested parties. This ensures a smooth and efficient process for investors seeking to participate in the bond auction.
This bond issuance forms a significant component of the Federal Government’s broader domestic borrowing strategy for the first quarter of 2025, projected to reach up to N1.8 trillion. This reliance on the domestic debt market reflects the government’s proactive approach to address fiscal deficits and fund critical infrastructure projects, especially in the face of prevailing global economic uncertainties. The issuance calendar indicates a mix of reopened and new bonds across three planned auctions scheduled for January, February, and March 2025. This strategic approach diversifies the government’s funding sources and allows it to tap into the significant liquidity within the domestic market.
The government’s decision to increase its domestic borrowing through bond issuances signifies a shift towards internal financing, potentially reducing reliance on external debt and mitigating the risks associated with currency fluctuations and global economic shocks. The attractive features of these bonds, including competitive coupon rates, tax exemptions, and the backing of the Federal Government, are designed to stimulate investor interest and ensure the success of the auction. The proceeds from this bond issuance are expected to play a crucial role in financing infrastructure projects, stimulating economic activity, and contributing to the overall development of the Nigerian economy. The success of this bond program will be closely watched by market participants and will serve as an indicator of investor confidence in the Nigerian economy.
