Expert: FiveYear Tenor on FG’s $500m Bond Issuance  Seem Ambitious

Kayode Tokede

A Professor of Capital Market at the Nasarawa State University, Prof. Uche Uwaleke has expressed that the five-year tenor on federal government’s $500 million bond issuance seems ambitious, stressing that a two-year, short-term tenor, would have been better and less costly.

Uwaleke, who is also the President of Capital Market Academics of Nigeria in a statement obtained by THISDAY added that, “since this is a debut issuance designed to test the domestic market’s appetite for USD-denominated domestic bonds. It is instructive to note that when Ghana issued her first domestic dollar bonds in 2016, it had a 2-year tenor and was largely successful.”

According to him, another concern stems from the need to ensure that the exercise does not, as noted by the International Monetary Fund (IMF) in its Article IV Consultation report, put further pressure on the naira since part of the plan is to bring onshore dollar liquidity to the official market, ‘’which could lead to market fragmentation, increase the cost of naira securities, and add to pressures on the naira.”

“It is equally important to prevent a situation where the parallel market is made a source of funds invested in these bonds which speaks to whether there are adequate safeguards in relation to the Know Your Customer (KYC) principles in view of the nature of the transaction.

“For Nigerians in Diaspora in particular, a key consideration would be the effectiveness of the Clearing and Settlement infrastructure associated with the domestic dollar bonds issuance,” he said.

THISDAY had reported that FG is set to issue dollar-denominated bonds in the domestic market and hopes to raise at least $500 million from local and international investors through the process.

This domestic dollar bond will be the first of its kind in the country and is part of a bond programme having a total size of up to $2 billion with the minimum subscription at $10,000 and integral multiples of $1,000 above the minimum size.

“It is not yet clear what the indicative pricing would be. However, the expectation is that it will be attractive enough to lure a broad category of prospective investors,” he added.

On the likely impact on the economy, he highlighted that   the bond issuance provides an opportunity to earn risk-free return on investments given that dollar deposits with banks attract little or no interest.

 “All said, the benefits of the domestic dollar bonds outweigh the costs. It is expected that the net proceeds will be ring-fenced and invested in critical sectors of the economy such as Agriculture, Education and Health,” he added.