Abuja plans new N150b bond issue after $4b Eurobond proceeds last September
Jeph Ajobaju, Chief Copy Editor
Abuja has announced plans to raise N150 billion in new bond issuance, coming five months after the $4 billion Eurobond auction proceeds last September. The new quest will increase the national debt.
The Debt Management Office (DMO) published on its website the offer for subscription by auction for FGN January bond, with the auction date set for February 16. The issuance will be in two tranches of N75 billion each.
Bullet points
- The first tranche is the 10-year, 12.5 per cent FGN January 2026 re-opening bond. The second is the 20-year, 13 per cent FGN 2042 reopening bond.
- Auction date: 16 February 2022
- Settlement date: 18 February 2022
- Units of sale: N1,000 per unit subject to a minimum subscription of N50,001,000 and in multiples of N1,000 thereafter.
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Increase in Nigeria’s debt
The bond issuance adds N150 billion to the N38.005 trillion or $92.626 billion debt Nigeria piled up by the third quarter of 2021 (Q3 2021) during which period external debt servicing cost $1.82 billion, a 43.9 per cent rise on $1.27 million in Q3 2020.
Debt comprised loans taken by federal and state governments as well as the Federal Capital Territory (FCT), as published by the DMO.
Domestic debt servicing shot up 150.5 per cent from N322.75 billion in Q2 2021 to N808.49 billion in Q3 2021. And Year-to-date (YTD), it jumped to N1.74 trillion from N1.53 trillion in Q3 2020.
Local debt may even reach N43 trillion in 2022, projected by Agusto & Co, a research, credit ratings and credit risk management firm, in its “Nigeria in 2022” economic outlook, which also anticipates growth and the means to achieve it.
The firm projected domestic borrowing at about 860 per cent of revenue compared with a median of about 200 per cent for key economies in Africa.
Foreign debt may notch up to N2.1 trillion in 2022, as Abuja is expected to borrow $5 billion in addition to the current N38 billion debt.
Interest rate for bonds
The DMO circular said in terms of interest rate for re-openings of previously issued bonds, where the coupon is already set, successful bidders will pay a price corresponding to the yield-to-maturity bid that clears the volume being auctioned.
This is in addition to any accrued interest on the instrument.
The DMO announced the offer for subscription for its February 2022 FGN savings bond to investors, with interest rates of 7.22 per cent for the two-year bond and 8.22 per cent for the three-year bond.
The rates for the two tranches are lower compared to 7.542 per cent offered for the two-year FGN savings bond due 19 January 2024; and 8.542 per cent for the three-year FGN savings bond due 19 January 2025, per Nairametrics reporting.
FGN bond issuance
- A government bond is a debt security issued by a government to support its spending obligations.
- Government bonds can pay periodic interest payments called coupon payments.
- They are often considered low-risk investments since the issuing government backs them.
- FGN bonds are backed by the full faith and credit of the Federal Government of Nigeria and charged upon the general assets of Nigeria.
- They also qualify as securities in which trustees can invest under the Trustee Investment Act.
- They qualify as government securities within the meaning of Company Income Tax Act (CITA) and Personal Income Tax Act (PITA) for Tax Exemption for Pension Funds, among other investors.
