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Diaspora Bonds as Mark of Confidence in the Economy

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  • Diaspora Bonds as Mark of Confidence in the Economy

In this season of national despondency over economic recession, there is something to make the heart glow. The world is passing a verdict of optimism on the Nigerian economy and its managers. On June 19, Nigeria successfully issued its first diaspora bonds in the International Capital Market to raise the sum of USD300 million at the rate of 5.625% for a tenor of five years.

This feat made Nigeria the first African country to issue a bond targeted at retail investors in the United States, a market highly regulated by the United States Securities and Exchange Commission (U.S. SEC). The only previous U.S. SEC registration for an African country was targeted at institutional investors.

As impressive as this is, it is not the only good news. The bigger gain is that Nigeria received the approval of the US SEC, an achievement that is not possible unless a country has attained the highest level of transparency and accountability in its economic process. It is good news for Nigeria, and this should positively impact the country’s credit rating, transparency rating and financial market development index rating.

Also the issuance of bonds registered by the US SEC provides an opportunity to access a wide range of investors. In addition, Nigeria can now routinely access funds from private banks and wealth managers in the US and European markets. This opportunity is not available to other developing countries that have only issued Eurobonds. The diaspora bonds are the first bonds issued by an African sovereign registered with both the US SEC and the United Kingdom Listing Authority (UKLA), and targeted at retail investors.

The Debt Management Office, DMO, with Dr. Abraham Nwankwo as Director General, must be satisfied with the successful issuance of the bonds.

It followed series of road shows in the US, the UK and Switzerland organised by the DMO. Meetings were also held with investors in these countries to determine pricing. The bonds will be direct general obligations of Nigeria and are denominated in the U.S. dollars. The international Joint Lead Managers are Bank of America Merrill Lynch and The Standard Bank of South Africa Limited, while the Nigerian Joint Lead Managers are First Bank of Nigeria Limited and United Bank for Africa Plc.

Diaspora bonds are issued by a country to its own citizens abroad to tap into their wealth in the adopted developed countries. They are essentially a form of government debts that target members of the national community abroad. The sale of the bonds can be restricted solely to members of a particular nationality or opened to all buyers, with nationals receiving a preferential rate.

Nigeria has suffered from deficits in the national budget in recent years. Nearly N2.36 trillion is expected as deficit in the 2017 budget passed two weeks ago by the National Assembly and signed into law by acting President Yemi Osinbajo. The budget deficit is to be financed mainly by borrowings which have been projected at N2.32 trillion. Out of this amount, N1.07 trillion (46% of this borrowing) is intended to be sourced externally while N1.25 trillion will be sourced domestically.

The DMO has issued Eurobonds in the international market and had recently launched the first-ever Federal Government Savings Bond targeting retail investors in the country. Both have been quite successful, indicating investors’ confidence in the Nigeria economy.

The Diaspora Bonds are an addition to the menu, and one of the most innovative products from the staple of the DMO. Only two countries have successfully issued Diaspora Bonds – Israel and India – and Nigeria has now joined that list. Diaspora Bonds are tangible and effective financing options for countries that have substantial diaspora populations.

Nigeria is among the countries with significant diaspora populations and huge remittances from abroad. There are over 17 million Nigerians living abroad, and most of them reside in the US and the UK. According to the World Bank’s Migration and Remittances Fact book 2016, remittances from Nigerians living abroad hit $20.77 billion in 2015, making Nigeria the sixth largest recipient of remittances in the world.

The report says remittances to Nigeria rose every year over the last decade, from $16.93 billion in 2006 to $20.83 billion in 2014. And in 2016, remittances by Nigerians abroad were over $35 billion. This was the highest in Africa and the third largest in the world. The top two sources for Nigeria’s diaspora remittances in 2015 are the United States ($5.7 billion) and the United Kingdom ($3.7 billion).

The Diaspora Bonds have opened a new source of financing for the Federal Government of Nigeria for funding projects for the development of the country. President Muhammadu Buhari’s administration is currently working on delivering several capital projects. Out of a total expenditure outlay of N7.44 trillion in the 2017 budget, N2.36 trillion is for capital projects.

The budget has been designed to focus on five key execution priorities. These are stabilising the macroeconomic environment; achieving agricultural and food security; ensuring energy sufficiency in power and petroleum products; improving transport infrastructure, and driving industrialisation with a strong focus on small and medium scale enterprises.

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

The Diaspora Bonds were targeted principally at the Nigerian Diaspora to provide them with an opportunity to contribute to the national development. The Bonds were structured as a retail instrument to appeal to a wide base of investors, and it was offered through private banks and wealth managers, rather than the institutional investors that normally deal in large volume transactions. There was a considerable interest from investors from all over the world, with the issuance attracting initial orders of about 190% of the offered amount. Final subscriptions were about 130% of offer at the final price for the transaction.

With the successful issuance of the debut Diaspora Bonds, Nigeria will establish a programme for raising funds from Nigerians in the Diaspora to provide an avenue for continuous participation in the development of the economy by Nigerians in the Diaspora and other friends of Nigeria.

This is good news for Diaspora Nigerians and for Nigerian people as a whole.

– Chukwu wrote in from Abuja

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Finance

NAIC Pays N1.7bn Claims to Farmers

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The Nigerian Agricultural Insurance Corporation (NAIC) said it paid a total of N1.7 billion claims to over 5,000 farmers in the past two years.

NAIC, which is the only federal government owned insurance company authorised to offer agric insurance services to farmers at subsidised rate, said a breakdown of the paid claims showed that it paid N856 million to insured farmers in 2019 and N848 million in 2020.

Commenting on the development, NAIC Managing Director, Mrs. Folashade Joseph, said the claims were paid to the farmers to cover losses incurred in the course of doing business.

Joseph, enjoined agricultural investors and lending institutions to continue to partner NAIC by taking agricultural insurance cover that will enable them remain firm in business despite unforeseen circumstances from weather conditions and other risks in order to realise the food security agenda of President Muhammadu Buhari.

She said the above-mentioned amount was shared among five million farmers who suffered various setbacks in their farms as a result of natural course.

According to her, the NAIC Agric Insurance Scheme was launched in 1987 by federal government to restore the confidence and productivity of Nigerian farmers who suffered losses as a result of natural disaster such as flood, drought, pest and diseases.

The NAIC boss explained that the essence of the sensitisation campaign embarked by the corporation was to let the farmers know and understand exactly what NAIC does, the importance of insurance, and make them understand how insurance works, how they can access NAIC products and services, how to process their claims, as well as what insurance stands to do for them.

“Agribusiness is evolving fast and so many risks are being thrown up, many new participants are coming into the business of agriculture, and the risks are on the increase if you look at them across the value chain, there is no so many participants so we need to keep sensitising the farmers and let them know we are serving them, and we need to know from them how to serve them,” she explained.

Speaking further, she said, “our assurance to farmers is that when they are insured and they suffer losses covered by any of the policies they purchased, including natural disasters and whatever, they will get paid for their losses, and that is the purpose of insurance and setting up NAIC.

“Our motor is ‘Plowing the Farmer Back to Business, Plowing the Farmers into Prosperity’, and we settle claims.”

She said NAIC currently deals with thousands of farmers (Small, Medium, and Large scale farmers) across the country, adding that the corporation serves farmers with investment as little as N100, 000, and at the same time serves multinational farmers.

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Banking Sector

UBA Organises Capacity Building Forum

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As part of its commitment to support the growth and sustainability of micro, small and medium-scale enterprises (MSME) in the continent, the United Bank for Africa (UBA) Plc, is set to organise the next edition of its UBA Business Series.

The UBA Business Series which is a monthly event, is an MSME Workshop as well as a capacity building initiative of the bank where business leaders and professionals share well-researched insights on best practices for running successful businesses, especially in the face of the difficult operating environment that dominates the African business landscape.

Through this initiative, UBA has been assisting with essential tips to help businesses re-examine their models and strategies and ensure that they stay afloat and remain thriving, a statement from the bank explained.

The topic for the next edition of the series is, “Managing Performance for Business Growth,” and it will be held today, via Microsoft Teams.

At this session, the Managing Director, Secure ID Limited, Mrs Kofo Akinkugbe, will be sharing useful tips and insights on the key strategies of performance management to boost business growth.

Akinkugbe is the founder of SecureID Nigeria, a MasterCard, VISA and Verve certified Smartcard Personalization Bureau and Digital Technology company. She currently serves as the Managing Director/CEO, Secure Card Manufacturing, – a Smartcard manufacturing plant producing high security identity cards and documents for the Banking, Telecoms and Public sectors across Africa and beyond.

UBA’s Head, SME Banking, Sampson Aneke said of Akinkugbe, “with her vast experience garnered over the years from various sectors, she will help business owners understand how performance management strategies can be effectively implemented to ensure business growth.”

He emphasised UBA’s commitment and deep passion for small businesses, which according to him, remains the engine of any developing economy adding, “We know small businesses are the backbone of the economy in every country. In many climes, businesses with fewer than 100 employees account for 98.2 per cent of all businesses. This no doubt captures the importance of SMEs to a thriving economy which is why UBA is committed to seeing them flourish.”

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Banking Sector

CBN to Extend Credit Risk Management System to OFIs

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In an effort to curb growing bad debt, the Central Bank of Nigeria has said it will extend its Credit Risk Management System to Other Financial Institutions (OFIs) operating in Nigeria to protect them from bad debtors.

According to the apex bank, this is important following the successful implementation of the credit risk system in other lending institutions operating in Nigeria.

The bank disclosed this in a circular titled ‘Credit Risk Management System: Commencement of enrolment of all Development Finance Institutions, Microfinance Banks, Primary Mortgage Banks and Finance Companies’ and signed by Kelvin Amugo, the Director, Financial Policy and Regulation Department, on Monday.

In part, the circular read, “As part of efforts to promote a safe and sound financial system in Nigeria, the CBN introduced the CRMS to improve credit risk management in commercial, merchant and non-interest banks as well as to prevent predatory borrowers from undermining the banking system.

“With the successful implementation of the CRMS in deposit money banks, it has become expedient to commence the enrolment of Other Financial Institutions on the CTMS platform.

“Accordingly, all DFIs, MfBs, PMBs and FCs are required to report all credit facilities (principal and interest) to the CRMs and to update same on monthly basis.

“OFIs shall note the Bank Verification Numbers and Tax Identification Numbers are the only basis for regulatory renditions”.

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