As part of measures to exit the current economic recession, the Federal Government, yesterday, unveiled plans to float a Savings Bond to mobilise more resources from the general public, particularly individuals and small savers who will in turn have the opportunity to invest in financial instruments and earn commensurate returns.
Director General, Debt Management Office (DMO), Dr. Abraham Nwankwo, who disclosed this at a media briefing, said that the new instrument was part of its 2013- 2017 Strategic Plans geared towards the deepening and broadening of Federal Government’s securities market in order to sustain the development of other segments of the bond market and ultimately, boost government’s finances.
Nwankwo hinted that the proposed Federal Government of Nigeria (FGN) Savings Bond would provide an opportunity for Nigerians across all income segments to invest in bonds.
According to him, the new bond, which would be issued before the end of the first quarter of this year, will offer investment opportunities from as low as N5,000 to additional multiples of N1,000 subject to a maximum of N50 million.
Nwankwo also disclosed that the proposed financial instrument will have a tenure of 2-3 years at a competitive fixed interest rate that would be announced by the DMO on the first work day of every month or as may be determined by the organisation from time to time.
“The rationale for the issuance of FGN Savings Bond are to deepen the national savings culture, diversify funding sources for the government and establish a benchmark for other issuers of bonds in the country. It offers guaranteed returns, helps to stimulate and deepen the savings culture among households and encourages financial inclusion. It enables individuals to enjoy those benefits, which accrue to big investors in the capital market. “Savings Bond also helps to increase access to funds available for investment in the economy, thereby floating gross capital formation and increase in output within an economy.
“Investors can subscribe through the over 100 stockbroking firms trading on the floor of the Nigerian Stock Exchange (NSE) and accredited by the DMO to act as distribution agents. Every month, subscription shall open same day the price is announced and investors will have five working days to put in their subscription through the distribution agents,” he said.
Nwankwo disclosed that DMO was encouraged to float the new saving bond following the success it recorded in the $1 billion Eurobond it recently floated at the international financial market. He explained that the Eurobond was floated to enable the government secure more funds for the execution of key infrastructure projects in the 2016 budget.
The DMO boss said that contrary to the perception in some quarters, the Federal Government did not require any special approval to issue the said Eurobond as it had already been captured in the 2016 Appropriation Act, which still runs up to the end of the first quarter of this year.
The major gain of the bond issuance, Nwankwo said, was that it was oversubscribed with the level of subscription hitting almost 800 per cent and at a veritable price relative to the expectations and negative predictions before the exercise. “It was obtained at a coupon of 7.85 per cent per annum for a tenure of 15 years.
The last time Nigeria went to the market and issued one was in 2013. It was its second outing and a tranche was then obtained for 10 years. This time, we decided it was important to have a longer tenure. “Initially, most analysts felt that the recent bond was wrongly timed, given the fact that the global economy is not bright as it should be in addition to Nigeria’s local economic challenges,” he said.