Nigeria’s Eurobond remains one of the most profitable in the investment world. Most Nigerian investors do not invest in this instrument due to ignorance or lack of awareness of its profitability. The Federal Government of Nigeria and many other corporate organizations subscribe a lot to Eurobonds and issue it often. This should make you see that there is something to this investment tool. Many have taken advantage of this relatively high yield environment in Nigeria and you can also be one of them. If you are not yet participating in the Eurobonds in Nigeria and are wondering what exactly Eurobonds are and how you can be a part of Eurobond investments, you are in the right place. This article provides you with information on all you need to know about Eurobond investments.
How to Invest in Eurobonds in Nigeria
What are Eurobonds
Eurobonds are bonds that are denominated in another currency other than that of the issuer. For example, when the Federal government issues a Eurobond like that of the Nigeria Eurobonds and Diaspora bond of 6.75% US$500 million January 2021. This is a bond issued by the Federal Government of Nigeria in Nigeria but denominated in the United States Dollars.
Those who obtain this bond, buy them in dollars, also the interest and principal repayment are conducted in US Dollars.
Please note that Eurobonds are not necessarily denominated in Euros as the name implies as you can see from the FGN Eurobond mentioned above. Bonds denominated in US dollars are also referred to as Eurobonds. In some places, you will also find that bonds denominated in US Dollars are referred to as Eurodollar bonds, while those denominated in Japanese Yen are known as Euroyen bonds. However, the term ‘Eurobonds’ have come to be generally associated with bonds denominated in currencies other than that of the issuer.
How to Invest in Eurobonds
The process of investing in Eurobonds in Nigeria does not differ from that of investing in local bonds. Both, FGN bonds and also, FGN Eurobonds can be bought both at the primary market at the initial offer level or at the secondary market for an existing bond. All that is needed is for the investor to complete the tender for Federal Government of Nigeria Bonds’ form, submit the tender through any of the authorised dealers and make the required payment when the bid is successful.
Eurobond secondary market buy
An investor can still participate in Eurobonds even if he or she did not participate when the bonds (either government or corporates) was originally issued in the primary market. Such a person can participate in the secondary market through the Nigerian Stock
Exchange or OTC market
The OTC which means over-the-counter (OTC) market is a decentralized market in which market participants trade stocks, commodities, currencies or other investment instruments directly between two parties and without the involvements or supervision of a central exchange or broker. Over-the-counter markets are conducted electronically and not via physical locations.
Government or Corporate Eurobonds
Eurobonds come as both government and corporate bonds. As an investor, you can choose whether you want to buy government Eurobonds or Seplat Eurobond (corporate). Corporate issued Eurobonds may offer higher interest than government-issued Eurobonds. However, they also offer higher risk. Just like local bonds Eurobonds also have different risks characteristics, Different investors also have a different tolerance level for risks as well as differing risk appetite. If you want to start to invest in Eurobonds, ensure you weigh the risk characteristics of the Eurobonds and set it against the interest rate, to know if it is worth it. Most Eurobonds come with credit ratings, which serve as a measure of their quality and risk profile. For example, an AA rated bond is of higher quality than A-rated bond. An AA rated bond means it has a low chance of default and therefore offers more security and stability. An AA rated bond, therefore, pays lower interest than an A-rated bond.
How to obtain an FG Eurobond
Usually, when bond issues open in primary markets, the relevant document contains a list of the banks or brokers that have been authorized to sell the bonds. In Nigeria, FGN issued bonds are purchased via Primary Dealer Market Makers (PDMMs). These are banks appointed by the Debt Management Office of Nigeria, (DMO), to act as authorised dealers of FGN bonds. In order to know which of the banks to invest in, consider the time of turnover of yield, responsiveness to clients, their client service excellence, and so on. The banks or brokers may differ in their commissions and other charges as well.
After you have selected the broker or bank you want to use, complete the required purchase order forms and instructions on what account to debit for the purchase.
When all these have been done, wait, and get a confirmation from your bank/broker that your purchase has been successful.
Investing in Corporate Eurobonds via Mutual funds.
There are various companies that offer you the opportunity of investing in Eurobonds via mutual funds. For example:
FBN Nigeria Eurobond (USD) Fund
The FBN Nigeria Eurobond (USD) Fund provides investors with capital appreciation by investing in Eurobonds issued by the Nigerian government and other reputable corporate institutions. The FBN Nigeria Eurobond (USD) Fund is Nigeria’s first US dollar-denominated mutual fund which allows you to earn an income in dollars.
- The minimum amount you can invest is $2,500 (for individuals) and $100,000 (institutions)
- You earn higher interest rates than a normal US dollar domiciliary bank account
Stanbic IBTC Dollar Fund
This is an open-ended scheme that invests in US dollar-denominated securities issued by the Securities and Exchange Commission registered Nigerian entities such as corporate and sovereign Eurobonds and mutual funds. The Fund allows investors to have a chance at dollar-denominated securities which ordinarily would be inaccessible to them because of the minimum amount required to make such investments.
Other corporate Eurobonds Mutual funds are:
United Capital Asset Management
ARM Eurobond Fund
Eurobonds are a great way of investing so one can achieve a higher yield on investments. The major disadvantage of investing in Eurobonds is with foreign exchange risk.