In a bid to increase participation of retail investors in the Nigerian capital market, the Debt Management Office (DMO) on behalf of Federal Government of Nigeria (FGN) will next week issue the FGN Savings Bond.
The Offer for Savings Bond which opens Monday, March 13, 2017 on the Nigerian Stock Exchange (NSE) runs for 5 days and will be issued monthly thereafter.
Investors are to subscribe through stockbroking firms trading on the floor of the Nigerian Stock Exchange and accredited by the DMO to act as Distribution Agents.
Already, Debt Management Office has accredited eighty-seven (87) stockbroking firms to market and distribute the Savings Bond, a move seen to deepen the national savings culture while reaching grassroot investors.
The savings bond issuance is part of the Federal Government’s programme targeted at the lower income earners to encourage savings, while earning higher income relative to savings account in banks.
Interest on the bond is paid directly into the bond holders’ accounts. The bond is acceptable as collateral for loans by banks and can be sold for cash in the secondary market. The interest incomes earned from the securities are tax exempt.
“Savings Bond is a safe type of investment because it is backed by the ‘full faith and credit’ of the Federal Government and, therefore, virtually risk free. Like a typical sovereign bond, the FGN savings bond offers a less volatile source of income. It is a good way to save for the future”, said analysts at United Capital Plc.
“It is good for savings towards retirement, marriage, school fees, house, projects etc. It is safe; backed by the full faith and credit of the federal government. It enables individuals to enjoy those benefits which accrue to high net-worth investors in the capital market”, the analysts added. United Capital is one of the accredited stockbroking firms for the savings bond.
Also speaking on the savings bond, Patrick Ezeagu, Chief Executive Officer, Solid-Rock Securities & Investments Plc told INVESTOR that, “Before now, we have been asking the Federal Government not to make investment in its bonds an exclusivity for the big boys and it appears that they have finally listened to us as the savings bond is what every investors can have”.
Ezeagu, who is also the Chairman, Association of Stockbroking Houses of Nigeria (ASHON) said the savings bond offer is capable of reactivating the market. “This is one way to build confidence in the market because it carries the integrity of the Federal Government,” he added. Solid-Rock Securities & Investments Plc is also an accredited stockbroking firm for the savings bond.
Chris Okenwa, Managing Director/CEO, Fidelity Securities Limited, another DMO accredited stockbroking firm to the saving bond told INVESTOR that returns from the savings bond will be competitive with the Treasury Bills (T-Bills), adding that the savings bond drops into Central Securities Clearing System (CSCS) and investors can easily trade when they wish.
“The savings bond will deepen the market because it enables all citizens to participate. It is aimed at reaching the grassroot evidenced in the number of accredited stockbroking firms,” Okenwa said. He noted that savings bond will give investors regular and guaranteed returns, unlike equities with returns that fluctuate.
Beside the fixed quarterly coupon payment, there is the potential for capital appreciation given outlook for a moderation in interest rate in the medium term as economic headwinds gradually dissipate, analysts noted. It is envisaged that the savings bond coupon would print close to that of an existing FGN of bond of comparable maturity (that is 2-3 years; 16-17percent).
Minimum subscription amount is N5,000 with additions in multiples of N1,000 subject to a maximum of N50million. The Bond is backed by the full faith and credit of the Federal Government of Nigeria.
The product will be issued monthly in tenors of 2 and 3 years, with quarterly payment of interest to investors. The product will be offered to the investing public through Offer for Subscription at an interest rate to be announced by the DMO. The Offer for subscription will be open for 5 days from the date of announcement.
The FGN savings bond is aimed at providing opportunity to all citizens irrespective of income level to contribute to National Development. It also enables all citizens participate in and benefit from the favourable returns available in the capital market; and to diversify funding sources for the Government.
Iheanyi Nwachukwu
