The Federal Government of Nigeria (FGN) in line with the Debt Management Office (DMO) framework has issued a domestic dollar bond valued at $500 million, available for subscription to interested investors.
Nigeria’s series one $500 million domestic dollar bond is available to residents of the country and abroad as well as local pension firms, targeting funds from “domiciliary accounts, diaspora remittances and foreign investments.
The bond offer which opened on Monday 19th August has a five-year tenure and will close on August 30, 2024.
Africa’s most populous nation is targeting as much as $2 billion through the issuance of the dollar-denominated bonds to domestic investors.
United Bank for Africa (UBA) is the designated receiving bank for this bond. There has been positive sentiment towards UBA stock and its designation as receiving bank is a testament to its strong performance with its stock returning 86.48% in the past year, which makes it a must buy for investors.
At the end of the 2023 financial year, UBA recorded an impressive leap in gross earnings, as it grew from N853.2 billion recorded at the end of 2022 to close at N2.07tn; representing a strong 143 percent growth; total assets also rose remarkably by 90.22 percent, to close at N20.65 trillion up from N10.86 trillion in 2022.
UBA’s African subsidiaries contributed over 55% to the bank’s profit last year, while Return on Equity (ROE) was one of the highest in the industry and closed 2023 FY at 41.20 per cent from 19.70 per cent reported in 2022.
There is also strong prospects for sustained growth as analysts await Half Year (H1) results of the bank, with further outlook of the bank regarding Full Year 2024 also showing great promise.
UBA is set to emerge as the most profitable Nigerian bank by the end of 2024, according to Muyiwa Akinyemi, Deputy Managing Director, UBA Plc.
“UBA will become the top bank by profit from this year. There is nothing stopping us from being number-one,” Akinyemi told MoneyCentral in an interview at a Lagos media event to celebrate the bank’s 75th anniversary.
The tier-one lender started 2024 on a stellar mode as it recorded the fastest profit growth in a decade. UBA’s net profit surged by 166.10 percent to N142.58 billion as at March 2024 from N53.58 billion as at March 2023.
Analysts at Chapel Hill Denham Limited say the plans to roll out a special financing initiative through the company’s 3-year partnership programme with Africa Continental Free Trade Area (AfCFTA) is business accretive.
MoneyCentral after talking to analysts has outlined below, 5 major reasons investors should not miss out on this $500m Domestic Dollar Bond offer:
The bond has the juiciest dollar yield in the market
The 5-year domestic FGN Bond, maturing in 2029, has an attractive interest rate of 9.75% per annum. For retail investors it is an attractive return on investment when compared to other dollar mutual funds in the market.
“The yield is attractive and hopefully it helps to partially satisfy the appetite by middle class and High Net Worth Individuals (HNIs) in the country to dollarise their assets. Whilst it’s also a great initiative to raise funds and stem outflows of needed foreign currency,” Abiola Rasaq an economist told MoneyCentral.
The minimum subscription is $10,000 with multiples of US$1,000 thereafter.
For Nigerians with domiciliary accounts it is an opportunity to invest some of the idle funds in interest bearing investment as opposed to sitting in bank accounts earning zero or negative rates when fees are applied.
Wide eligibility
The bond is open to Nigerian residents, Nigerians with FGN savings bonds, Nigerians in the diaspora and qualified institutional investors.
Qualified institutional investors include banks, cooperative societies, fund managers, pension fund administrators, insurance companies, government agencies, staff schemes, non-bank financial institutions, trustees, custodians, investment/unit trusts, stockbrokers and market makers.
This makes the bond attractive not just to Nigerians with domiciliary accounts but also to Nigerians in places like the USA and UK who can earn 9.75% per annum on their savings.
This compares to the US 5 Year Treasury Rate of 3.66% and the best 1-Year Certificate of Deposit (CD) rates for August 2024 of 5.25%.
Safety of investment
The bond is considered as risk-free with the sovereignty and credit of Nigeria as a guarantee.
Payment for the bond shall only be made through the banking system and electronic transfers into the designated accounts.
No cash deposits will be accepted under this bond offer transaction, except where such cash deposits have been made into the domiciliary account for not less than 30 days prior to the date of this offer.
Under the rules, payment is expected to be made within 24 hours upon receipt of the allocation confirmation notice, with subscribers responsible for applicable transfer charges.
Bi-annual interest payment
The dollar bond is a five-year tenor, with bi-annual interest payment in the currency of issuance, the first-of-its-kind domestic issuance.
Nigeria’s three and five-year tenor Eurobond currently yields between 9.662 per cent and 10.03 per cent, thus the midpoint pricing of 9.75 per cent is considered attractive.
Redemption shall be through bullet repayment on the maturity date.
Tax exemption
Besides the interest rate of 9.75 per cent per annum, 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 pension fund administrators can also invest in the bond. The bond’s structure allows the government to absorb oversubscriptions within the limit of the programme’s total size of $2 billion.
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