Bonds are short, mid, and long term debt securities that the government of a nation issues to raise capital. Bonds are also corporate debts issued by a company to raise capital. For the purpose of this article, we will be narrowing our searchlight on the Federal Government of Nigeria Bonds and not corporate Bonds.
Since the creation of The Debt Management Office (DMO), The Federal Government of Nigeria (FGN) has continually been outsourcing for funds to carry out some capital projects within a regulated and controlled body. Such capital projects include the ongoing Lagos–Kano Standard Gauge Railway, Lagos to Ibadan highway, the Second Niger Bridge, Mambilla Hydroelectric Power Station in Taraba State amongst others.
The role of the Debt Management Office is to continually create alternative and attractive measures to raise capital for such projects and to effectively manage the nation’s debt profile.
The Federal Government of Nigeria has over the years offers its Bonds for subscriptions on a monthly basis ie to say, the FGN Bonds are offered twelve times in a year. Due to its high-interest rates and investment safety, the FGN Bonds have constantly been oversubscribed.
A Few days ago, the Federal Government offered N50bn bonds for subscription and it has been oversubscribed. It is worthy to note that the FGN Bonds are mid and long term debt securities as their maturity dates vary from 5 years to 30 years.
The FGN offers come in three categories;
1. 15bn 5-year re-opening Bond offers at an interest rate of 12.75%.
2. N15bn 15-year new issue FGN Bond
3. N20bn 30-year new issue FGN Bond.
The minimum investment for the FGN Bond is N50 million. Banks usually pooled this amount together and purchase the Bond directly from the Debt Management Office on behalf of their customers.
Access Bank, Zenith Bank, UBA, Guaranty Trust Bank, amongst others are the designated Banks that an investor can approach and make an inquiry and invest. They are all called Primary Dealers Market Makers (PDMMs).
The FGN Bonds are also listed on The Nigerian Stock Exchange(NSE), and The FMDQ OTC Securities Exchange thereby they assist to buffer the stock exchanges’ Market Capitalizations.
The Federal Government of Nigeria Bonds also qualifies as investment securities under the Trustee Investment Act and acts as liquid assets when calculating Banks’ liquidity ratio.
The returns on its investments are payable semi-annually.