Thursday saw a notable increase in the value of the naira relative to the US dollar, as a result of the record-breaking domestic bond issued in US dollars being successfully issued.
The $500 million bond, which was organised by the Ministry of Finance, symbolises the increasing trust that Nigerians have in their capital market and represents a significant turning point in the country’s economic growth.
According to data gathered by BusinessDay, the maiden domestic dollar-bond issue that drew a lot of investor interest on Thursday caused the naira to rise 5.06 percent against the dollar, its largest advance in over two months.
On Wednesday, the federal government said that it has raised more than $900 million from its initial $500 million domestic dollar bond offering, which ended last month on August 30, 2024, with an interest rate of 9.75 percent annually for five years.
With a spread of +600 basis points over US Treasuries, the unusually large coupon appears to have drawn interest from both institutional and retail investors.
According to data from the FMDQ Securities Exchange Limited, the naira strengthened by 5.06 percent during trading, with the dollar quoted at N1,558.75, down from N1,637.59 on Tuesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
Infrastructure development
Wale Edun, the minister of finance and coordinating minister of the economy, said in a statement that the bond issuance saw an impressive over 180 percent subscription, highlighting the continued confidence of investors in Nigeria’s economic stability and growth prospects. This move is reminiscent of his prior experience as a top investment banker.
As approved by President Bola Ahmed Tinubu, Edun claims that the proceeds of the bond will go towards important economic sectors.
Despite the current economic challenges, the minister stated that the successful issue demonstrates the government’s commitment to diversifying its funding sources and promoting economic growth.
Edun claims that the upcoming listing of the dollar-denominated bond on the FMDQ Securities Exchange and Nigerian Exchange (NGX) will establish Nigeria as a major participant in expanding financial inclusion and strengthening its capital markets.
He pointed out that the bond will give these projects the much-needed funding they require, solidifying Nigeria’s standing as the continent’s leader in innovative financial markets.
Increased inflows
According to insiders in the market, the $500 million bond’s success would create a new avenue for governments and businesses to raise finance, with the first sovereign bond acting as a model for future issues.
A 180 percent subscription, according to financial research specialist Abdulrauf Bello, indicates a healthy hunger.
“I believe the FG intends to raise $2 billion overall. They could get a lot more from this outing. The FX market should take a small break,” he stated.
Since the naira’s liberalisation, it has fluctuated greatly, reaching an all-time low of almost N2,000 to a dollar on the black market before closing February at N1,600/$ on the official marketplace.
The CBN governor, Olayemi Cardoso, responded to the naira’s fast fall by soaking up liquidity and enacting measures to stabilise the foreign exchange market.
It experienced a momentary upturn in fortune, becoming the currency with the best performance in March. In April, the naira lost some of its gains and emerged as the world’s worst-performing currency, according to a recent Bloomberg analysis.
Though it was a season of great demand, June saw some steadiness, staying between N1500 and N1600.
According to Edun, the proceeds from the sale of this bond will go towards funding vital development initiatives and infrastructure projects that will bolster important facets of Nigeria’s economy.
Effect on the Economy
The $500 million bond’s enormous success, according to Patience Oniha, director general of the Debt Management Office (DMO), was a crucial milestone in Nigeria’s economic growth.
She restated the Federal Government’s resolve to work with stakeholders and investors to promote the nation’s economic development.
Oniha congratulated each party engaged in the deal, pointing out that the advisers’ knowledge and direction were crucial to its success.
“We also appreciate the ongoing support of the Nigerian public and our institutional partners who helped to successfully complete this historic issuance,” she added.
