$300m Diaspora Bond Success Signals Economic Resilience

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The successful listing of the $300 million Diaspora bond in record time  signposts economic resilience and  renewed interest in the economy by Nigerians in the Diaspora and those with offshore funds, Olaseni Durojaiye writes

As Nigeria basks in the euphoria of  the successful $300 million Diaspora bond issue, the first of its kind in the country, analysts and stakeholders say the feat  was possible because of the  resilient economy, which  has renewed investor confidence. The federal government, which  has been exuberant  about the  130 per cent subscription of the bonds, revealed that there was considerable interest from investors from all over the world, with the issue attracting initial orders of about 190 per cent of the offered amount.

In fact,  not a few of the economic watchers acknowledged that  the oversubscription of the bond issue was a positive development for Nigeria and endorsement of the economy by investors in the Diaspora.

However, there is also an on-going  discourse on application of the proceeds from the bond and repayment plan.

While the analysts did not see anything wrong with the latest borrowing, especially with the sharp drop in the nation’s revenue which led it into recession, some of them argued that emphasis  should be on application of the  proceeds.

According to one of the analysts, Dr. Vincent Nwani of the Lagos Chamber of Commerce and Industry, emphasis should be placed on what the proceeds of the bond are applied, so as to guarantee the repayment by the next generation. Referring to the Ricardian Equivalence, he noted that, since the borrowing  would be paid by future generations, it  was expedient on government to spend it on revenue-yielding projects to ease the repayment burden.

 

The Bond

In announcing the $300 million Diaspora bond penultimate week, the Debt Management Office (DMO) had said it would raise the funds from Nigerians in the Diaspora to finance capital projects and provide an opportunity for them to participate in the development of the country. As part of measures to fund capital expenditure, the Federal Government had in February announced its offering of $1 billion euro bond under its newly-established $1 billion Global Medium Term Note programme. The $1 billion euro bond, which would mature on February 16, 2032, was eight times oversubscribed in the international market at an interest rate of 7.8 per cent with orders in excess of $7.8 billion.

The DMO also announced the Bank of America Merrill Lynch and The Standard Bank of South Africa Limited as the international joint lead managers and First Bank Nigeria Limited and United Bank for Nigeria Plc. The office noted that the bonds would be direct general obligations of Nigeria and will be denominated in U.S. dollars.

The DMO  Director General, Dr. Abraham Nwankwo, explained in a statement ‎ that the Diaspora bond, was targeted principally at Nigerians abroad, to provide them with the opportunity to contribute to national development.

According to Nwankwo, the bond was structured as a retail instrument to appeal to a wide range of investors and was offered through private banks and wealth managers, rather than institutional investors, which normally deal in large volume transactions.

He enthused that the Diaspora bond had opened a new source of financing for the government for funding projects for the development of the country.

“This new window further enhances funding liquidity and flexibility of the Nigerian economy, which are necessary characteristics as the country gathers momentum towards the attainment of advanced economy status,” he explained.

Reacting to the successful outing, the Minister of Finance, Mrs. Kemi Adeosun, said: “To have received the approval of the U.S. SEC was indicative that the highest level of transparency and accountability in the economic process has been attained.”

Adeosun explained that the bond should positively impact the country’s credit rating, transparency rating and financial market development index rating.

“The Diaspora Bond is the first bond issued by an African sovereign registered with both the U.S. SEC and the United Kingdom Listing Authority (UKLA) and targeted at retail investors,” she stressed.

Analysts

The success and the speed with which the bond was oversubscribed notwithstanding, the bond have continued to draw opinions from analysts. While the general opinion agreed that the cost was good and the oversubscription was a show of confidence in the economy, particularly under the current administration, other opinions harped on the need to spend proceeds on projects that could fund its repayment.

To the Executive Director, BGL Capital Ltd, Olufemi Ademola, who spoke with THISDAY days after the DMO announced that the bond was oversubscribed, at 5.625 per cent Coupon rate, the bond issue was a “nice one” considering that the country’s $500 million Eurobond trade for seven per cent “it is very interesting.”

“That shows that Diaspora Nigerians are optimistic about developments in the country. It is a sign of endorsement by the guys abroad,” he added. 

Similarly, Managing Director of Cowry Assets Limited, Mr. Johnson Chukwu, agreed that, at $300 million coupon rate of 5.625 per cent for a tenor of five years, the bond issue was a success.

However, there were insinuations that the entire bonds may not have been bought by Nigerians in Diaspora or institutional investors who planned to sell to retail investors.

According to Chukwu, until the list of investors and the investment bands are published, there is a doubt as to the actual investors. He insinuated that the real investor may not be entirely Nigerians in the Diaspora.

“Until the list of the actual investors is published or the band, I will say that it is unlikely that the bonds were bought by Diaspora Nigerians.,” he stated. “I state so because I have a fair knowledge of the income profile of Diaspora Nigerians and I don’t think they could have bought the bond within the time that it was bought; they would have needed more time to do so if they were to have bought that volume. It is not unlikely that some institutional investors bought the bond then plans to do retail resell.”

Another analyst and Director, Union Capital Ltd, Egie Akpata, aligned with Chukwu and insisted that the concerns around the actual investors are warranted. According to him, “If you look at the places that they went to, they went to two places in Switzerland, those are not places that you go to meet a community of Diaspora Nigerians; it is a place full of private banks; it is a place where wealthy Nigerians stash their wealth.  Institutional investors could buy the bonds then resell, according to the mechanics of it, it is allowed especially in the US market, and the list of investors may not be released.”