15 Things to Know About FG’s Domestic Dollar Bond

On August 19, the federal government unveiled a $500 million domestic dollar bond for public subscription, marking a significant development in the nation’s financial landscape. Here are 15 key details investors should know about this new financial instrument:

Purpose of the Bond: The funds raised through this bond will support critical sectors of the economy, pending approval by President Bola Tinubu, the finance minister, and the national assembly.

Investor Eligibility: The bond is open to Nigerian residents, Nigerians with savings abroad, the Nigerian diaspora, as well as foreign and institutional investors, including pension fund administrators.

Payment Method: All payments for the bond must be made through electronic transfers into designated accounts. Cash deposits are not accepted.

Domiciliary Account Requirement: Funds for subscription must have been in a domiciliary account for at least 30 days prior to the application date. For this issue, the funds should have been in the account by July 20, 2024.

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Application Process: Interested investors can obtain an application form through the DMO website, issuing houses, financial advisers, or receiving banks.

Bond Issuance Details: While the target programme size is $2 billion, the initial tranche of $500 million is being offered. An additional $1.5 billion may be issued in later tranches.

Repayment Terms: Both the principal and interest will be repaid in dollars. Repayment will not be made in naira.

Interest Payments: Interest will be paid semi-annually, every six months, while the principal will be repaid at the end of the bond’s five-year tenor.

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Accrual of Interest: Interest on the bond begins to accrue from the issue/settlement date, which follows the closure of the offer.

Identification Requirements: Investors need to provide a Bank Verification Number (BVN) and a National Identification Number (NIN) for subscription. Nigerians in the diaspora can apply for these if they do not already possess them.

Liquidity Status: The Central Bank of Nigeria (CBN) has granted the bond a liquid asset status, which means it can be easily converted to cash.

Over-subscription Handling: Necessary approvals will be sought to accommodate over-subscriptions. If the over-subscription is not approved, excess funds will be refunded to the subscribers.

Tax Exemptions: Income earned from the domestic dollar bond is exempt from companies’ income tax, personal income tax, and capital gains tax.

Differences from Naira Bonds: Unlike traditional naira-denominated bonds, interest and principal payments for this domestic dollar bond are made in dollars.

Comparison with Eurobonds: Eurobonds, typically issued in larger lot sizes (minimum $200,000) and listed on Euroclear, differ from domestic dollar bonds, which have a minimum subscription of $10,000 and are listed on the Nigerian Exchange (NGX) Limited and FMDQ Securities Exchange.

The domestic dollar bond represents a notable opportunity for investors seeking to diversify their portfolios with a dollar-denominated asset while contributing to Nigeria’s economic growth.