The Managing Director and Chief Executive Officer of Successory Nigeria Ltd, Dr. Steve Ogidan, has said that the inaugural domestic Federal Government of Nigeria (FGN) US Dollar Bond which was oversubscribed by 180 per cent to $900m is not a guaranteed solution for exchange rate crisis.
Ogidan said this during an interview with NewsNGR following the announcement made by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun about the success of the $500m bond.
Edun disclosed that Nigeria’s first-ever foreign-currency domestic bond secured $900m in subscriptions.
The $500m domestic FGN US Dollar Bond is a five-year maturity and a 9.75 per cent coupon and is the first tranche of a $2bn bond programme registered with the Securities and Exchange Commission.
The minister noted that the successful issuance of the domestic dollar bond marks a significant step in the government’s efforts to deepen economic growth and promote financial inclusion.
The CEO said, “There will be improved access to Capital Markets occasioned by enhanced credibility. A successful US Dollar bond issuance could enhance Nigeria’s credibility in international capital markets, making it easier to raise funds in the future.
“Similarly, by tapping into the US Dollar bond market, Nigeria could diversify its funding sources, reducing its reliance on domestic capital markets.
“A US Dollar Bond has the potential for Lower Borrowing Costs. If the bond is well-received by investors, Nigeria may be able to secure lower interest rates on future debt issuances, reducing the cost of servicing its debt.”
He further explained that the proceed has a huge potential to attract foreign investors, adding that the successful bond issuance could provide a source of capital for economic development.
“It is also a sign of improved investor confidence. An over-subscribed bond is a signal to investors that the country’s economy is stable and attractive, potentially leading to increased foreign investment, which can also support the exchange rate.
“Unfortunately, being over-subscribed is not a silver bullet to address limited capacity of economic handlers. There are some economic fundamentals to be addressed.
“The exchange rate is determined by a country’s economic fundamentals, such as its balance of payments, inflation rate, and interest rate. Even if a bond is over-subscribed, these factors can still have a significant impact on the exchange rate.
“In addition, a global market conditions, such as interest rate changes or geopolitical events, can also influence exchange rates and may outweigh the impact of a single bond issuance. While an over-subscribed bond can provide a temporary boost to the exchange rate, its long-term impact may be limited if the underlying economic factors are not conducive to exchange rate stability,” the CEO noted.
Successory Nigeria boss however said that the impact of Nigeria’s inaugural US dollar bond on its debt profile would depend on various factors, including the size of the issuance, the interest rate offered, investor demand, and exchange rate movements.
He cautioned that while the bond could provide access to new capital markets and potentially lower borrowing costs, it also increases country’s debt burden and foreign exchange exposure.