The Federal Government and other financial market stakeholders will today begin the implementation of a new market structure for the government’s domestic debt market.
The import of the move is to realign government debts to specific segment of the investing public.
The guidelines on the new market structure obtained by The Nation at the weekend indicated that government will regroup the investing publics in line with the objectives of its three major debt securities – Nigerian Treasury Bills (NTBs), Non-retail sovereign bonds and the forthcoming Federal Government of Nigeria Savings Bond (FGNSB).
Under the new structure, the government will increase the minimum subscription to the NTBs and non-retail sovereign bonds to N50.001 million, in a deliberate effort to scale up participation in this segment to high networth individual and institutional investors and shift retail and small investors to the forthcoming FGNSB.
The minimum subscription for the FGNSB has been fixed at N5,000 while the maximum subscription for the new security is fixed at N50 million.
Several sources at the capital market confirmed that they have received internal circular on the commencement of the new market structure today, apparently in preparation for the first auction of the FGNSB scheduled for Monday March 13, 2017.
“The implication of the new market structure is that investors will not be able to invest directly in Nigerian Treasury Bills and Federal Government Bonds if they do not have N50,001,000 and above,” a market source stated.
The Federal Government is launching the FGNSB as part of efforts to widen its investors’base and deepen domestic participation in government securities.
The savings bond will bear all the regular features of a national bond including the zero default rate of a sovereign issuance, fixed coupon or interest rate, privileges and exemptions from certain taxes and levies, as currently outlined by the Central Bank of Nigeria (CBN), Federal Inland Revenue Services (FIRS) and other government ministries, departments and agencies (MDAs).
The Debt Management Office (DMO), which oversees issuance of Federal Government bonds, will be issuing the savings bonds on behalf of national government.
The FGNSB is deliberately targeted at the lower income earners as part of government’s plan to encourage savings and reward the low-income savers with more income from their savings compared with savings accounts with banks.
The bonds will be issued with a tenor (period) of between two to three years and a minimum size (amount that can be purchased) of investment of N5,000 and maximum of N50 million.
The interest rate, which will be fixed, will be paid quarterly, enhancing the attraction of the savings bond as grassroots instrument for the public.
The attractions of the savings bonds also included guaranteed returns, competitive fixed interest rate, tax exemption for the interest incomes and collateral for loans.
The retail savings bonds will, in addition, encourage financial inclusion among low income households and enable the public to enjoy those benefits which accrue to high net-worth investors in the capital market.
With the collateralisation of the bond certificate, subscribers can use the bond certificate as guarantee and collaterals where such are required in transactions with the MDAs, financial institutions and private organisations.
Investors will also be able to purchase the savings bond in small units through physical offices and several online platforms. After the closure of the primary issue for the savings bond, retail investors will be able to buy and sell the bonds through the Nigerian Stock Exchange (NSE).
Already, DMO had reached a Memorandum of Understanding (MoU) with the stockbroking community on the marketing and distribution of the savings bond.
The savings bonds will be traded like quoted equities and other securities on the NSE with stockbrokers expected to make two-way quotes for the FGNSB in order to provide secondary market liquidity for the savings bond.
The stockbrokers will act as agents to the DMO for the marketing and distribution of the FGN Savings Bond to retail investors, including selling the FGN Savings Bond to clients using their retail investor base and attracting new ones in order to deepen the retail market for FGN securities.
Stockbrokers are also expected to embark on public awareness campaigns to promote the product as well as develop a robust electronic marketing and distribution platform through which the FGN Savings Bond could be made available to retail investors.