Key highlights
- Nigeria’s Federal Government conducted an oversubscribed auction of its sovereign bonds on March 20, 2023, with four tenors offered to the public.
- The auction received a total of 499 bids, with 345 bids successful. The total subscription for the auction was ₦807.9 billion, more than double the amount offered.
- The highest subscription of ₦355.633 billion went to the 20-year bond, indicating investor interest in longer-term debt with higher yields.
- The bond proceeds will be used to finance Nigeria’s budget deficit, fund infrastructure projects, and refinance existing debt, stimulating economic growth and development.
Nigeria’s Federal Government conducted an auction of its sovereign bonds on March 20, 2023, with a total of four tenors offered to the public. The auction was oversubscribed, indicating strong demand for Nigerian sovereign bonds despite the country’s economic challenges.
The bonds on offer were the 13.98% FGN FEB 2028 (10-year), 12.50% FGN APR 2032 (10-year), 16.2499% FGN APR 2037 (20-year), and 14.80% FGN APR 2049 (30-year) with amounts totaling ₦90.00 billion for each tenor totalling ₦360 billion. The bonds were sold at varying rates with marginal rates ranging from 14.0000% to 15.7500%.
The auction received a total of 499 bids, with 345 bids successful. The total subscription for the auction was ₦807.9 billion, more than double the amount offered or by 124%. The total amount allotted was ₦563.3billion, with the highest subscription of ₦355.633 billion going to the 20-year bond. However, the highest allotment was N326.5 billion going to the 30-year bond.
What the data shows
The fact that the highest subscription of ₦355.633 billion (about 4x the offer) went to the 20-year bond indicates that investors are interested in longer-term debt with higher yields.
This suggests that investors are willing to invest their money for a longer period, up to 20 years, to earn higher returns on their investment. This could be due to the fact that the 20-year bond has a relatively high yield, which is attractive to investors seeking higher returns on their investments.
The allotment of ₦326.5 billion to the 30-year bond also shows that investors are interested in long-term debt with relatively high returns. The 30-year bond is the longest tenor on offer and has a relatively high yield, which is attractive to investors seeking to invest their money for a longer period and earn higher returns on their investments.
Who buys this bond
While the information on the top buyers of corporate bonds is not publicly disclosed by the debt management office, other publicly available reports indicate pension funds, asset managers, insurance companies, banks, institutional investors and foreign investors are among the largest buyers of FGN bonds.
Pension Funds, for example, allocate over 61.5% or N9.2 trillion of their asset under management of N14.79 trillion to FGN Bonds. The entire amount is classified under assets held to maturity.
The strong demand for Nigerian sovereign bonds can be attributed to their attractive yields, which offer investors high returns on their investments. The oversubscription also shows that investors have confidence in the Nigerian economy and the ability of the Federal Government to meet its debt obligations.
The proceeds from the bond auction will be used to finance Nigeria’s budget deficit, fund infrastructure projects, and refinance existing debt. This will help to stimulate economic growth and development in the country, which has been impacted by low oil prices and other macroeconomic challenges.
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