Domestic Bonds

How to invest in Nigerian Eurobonds


In 2019, Nigerian Eurobonds were considered one of the top 5 performing Eurobonds in the world.

Although Nigerian Eurobonds remain one of the most profitable in the investment world, few people know how to invest in them. The federal government and a number of companies in the country subscribe to and issue Eurobonds quite often, confirming their attractiveness as an investment tool.

What is Eurobond?

Basically, Eurobonds are financial instruments issued by a country or company other than the currency of the issuer. Thus, Nigeria issues fixed income securities in USD, it is a Eurobond instrument. For example, the $ 500 million 6.75% Eurobond of January 2021 is a Nigerian Eurobond issued by the Federal Government of Nigeria, Nigeria, but denominated in US dollars.

There is the sovereign, which is called a government bond, and the corporate bond.

Eurobonds work like fixed income securities in terms of bond instruments. It has a coupon, an interest rate paid on the bonds that is also paid semi-annually, a price at which the bond will be purchased, as well as a yield.

Price and yield have an inverse relationship, which means that when the price increases, the yield decreases. When the yield decreases, the instrument trades at a premium over its issue date.

An investor can buy Eurobonds while the main auction is in progress or later, in the secondary market, for those who were unable to participate in the main auction.

How to invest in Nigerian Eurobonds

The process of investing in Eurobonds in Nigeria is no different from that of investing in local bonds. Both bonds can be bought in the primary market at the initial offer level or in the secondary market for an existing bond.

All that is required is for the investor to complete the Bidding Form for Federal Government of Nigeria or Corporate Bonds, submit the offer through one of the authorized brokers and make the payment. required when bid is successful.

Basically, for banks, your account should be funded with the desired currencies. For example, to buy a dollar denominated Eurobond which is the most conventional issued in Nigeria, you need to fund your account in dollars and then send a bond purchase instruction.

Be aware of the risk profile of the bond before investing

Eurobonds can be corporate or government bonds. Corporate bonds may offer higher interest rates than government Eurobonds, but they also carry higher risk.

If you want to invest in Eurobonds, be sure to weigh the risk characteristics of Eurobonds and compare them to the interest rate to see if it’s worth it. Most Eurobonds have credit ratings, which are used to measure their quality and risk profile.

Usually obligations with the highest credit scores, the lowest yields, while bonds with the lowest credit scores offer higher yields. Yield, in this sense, is a measure of the creditworthiness of the bond issuer, meaning that the higher the credit risk on an investment, the more investors would demand a high return to compensate for it.

How to get a Eurobond FG

When bonds are issued in the primary market, the issuance document contains a list of banks or brokers that have been authorized to sell the bonds. Bonds issued by the FGN are purchased through Primary Dealer Market Makers (PDMM). These are banks appointed by the Debt Management Office (DMO), to act as authorized brokers of FGN bonds.

Can you finance a Eurobond with a naira account?

Not for the moment! You need a funded dollar account (home account) but your bank can easily guide you on how to get one.

Then complete the instruction documents, after which the bank will send you a market price and the expected return. The bank then debits your account for the purchase. Every six months or on the specified coupon dates you will receive your coupon and at maturity you will get your principal back if the issuer does not default. A coupon or the coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from the date of issue until maturity.

Here’s a simplified example of the process:

You walk into a branch of your bank and ask to buy $ 100,000 of Eurobonds. Note that your home account must already be funded with the amount. You will need to complete and sign the letter of instructions which will then be sent to the bank’s treasury unit for processing. The cash unit responds with the available Eurobond prices and asks you to confirm the purchase. When this is done, the cash unit executes the transaction and keeps it in its custody.

You can also sell the bonds in the secondary market.

Minimum investment as an individual

The minimum conventional investment bracket is $ 200,000, but an investment of $ 100,000 is also permitted. Amounts below that are problematic, however, as the secondary market trades in $ 200,000 increments.

Can people invest in mutual funds?

Basically, mutual funds raise funds from investors and buy Eurobonds in the secondary market. A mutual fund is like a vehicle that helps you buy bonds so that you are not directly exposed to the risk of the issuer. Therefore, individuals or institutions can also buy Eurobonds through mutual funds.

Mutual funds allow you to participate in the purchase of bonds with an amount less than the legal amount, as they work by pooling the resources of a large number of investors.