Market News

by Chima Nwokoji

THE naira posted significant gains in the week ending Friday, September 13, 2024, closing at N1,546.41, a 6.3 percent increase from the previous day’s close of N1,649.76.

This rebound followed the Federal Government’s successful bond sale, which raised US$900 million, nearly doubling the initial target of $500million.

According to the latest data from the Central Bank of Nigeria (CBN), Nigeria’s foreign exchange (FX) reserves rose by $621.2 million in 10 days after the domestic dollar bond sale. The gross FX reserves increased from $36.24 billion on September 2, 2024, to $36.87 billion by Thursday, September 12, 2024.

The increase in reserves is attributed to Nigeria’s recent domestic bond issuance, aimed at attracting foreign capital and boosting reserves. The rise in reserves comes at a critical time for Nigeria, which has been grappling with economic pressures, including the need to support the naira amidst global currency fluctuations.

Similarly, data from FMDQ showed that foreign exchange transaction turnover also increased during this period, with Wednesday’s volume reaching $221.24 million, compared to $197.37 million on Monday.

The strong investor appetite for the dollar-denominated bond may prompt the government to hasten the issuance of the remaining tranches of the US$2 billion program.

“The bond sale is expected to provide a much-needed boost to foreign exchange inflows and help address short-term supply-demand imbalances in the market,” the analysts stated.

The Debt Management Office (DMO) announced that Nigeria’s first Domestic Dollar Bond, introduced by the Honourable Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, was oversubscribed, raising $900 million—almost double the initial target of $500 million.

Tilewa Adebajo, CEO of CFC Advisory, explained that although the initial offer was $500 million, the $400 million oversubscription could still be sold by the DMO after obtaining necessary approvals, as long as it falls within the $2 billion tranche.

The five-year bond has a coupon rate of 9.75 percent, slightly higher than the 9.67 percent yield on comparable Nigerian Eurobonds at market open. The bond was oversubscribed by 180 percent, reflecting strong investor confidence.

According to the offer document, investors will receive their bonds in their Central Securities Clearing System (CSCS) accounts once the allotment process is complete. For those without an existing CSCS account, a non-trading CSCS account will be created, though investors must appoint a stockbroker to facilitate secondary market trading.

It explains that the process will not affect the investor’s right to receive interest payments or the principal amount upon maturity.

The bond will be available for trading on the Nigerian Exchange Limited (NGX) and FMDQ Securities Exchange Limited (FMDQ Exchange), enhancing liquidity in Nigeria’s financial markets.

In the same way, the Central Bank of Nigeria has granted liquid asset status to the bond, making it eligible for inclusion in the calculation of liquidity ratio for banks in Nigeria, just as the Honourable Attorney General and Minister of Justice of the Federation has issued a legal opinion and no-objection to the issuance, to allay fears of investors who wonder whether the Issuer complied with the relevant governing laws for the issuance.

Mr. Edun lauded the bond issuance, emphasizing that it demonstrates Nigeria’s economic resilience while expanding African capital markets.

He noted that proceeds from the bond will be allocated to critical infrastructure projects and development programs to reinforce key sectors of the economy.

In comparison with Eurobonds, the DMO had earlier clarified that Eurobonds are issued at large lot sizes (typically a minimum of US$200,000), whereas this instrument has a minimum of US$10,000 which makes it more accessible for retail investors, and Eurobonds are listed on Euroclear, whereas these bonds are listed on NGX and FMDQ as stated earlier.

The Presidency also welcomed the development. In a statement on Thursday, Bayo Onanuga, Special Adviser to the President on Information and Strategy, noted that the naira had gained strength almost two months after the Federal Government’s domestic dollar bond issue, which attracted significant demand.

According to Bloomberg data, the naira surged 4.8 percent against the dollar on Wednesday, its largest increase since July 22, closing at N1,558 per dollar, its strongest level since August 21.