In an economy where inflation rates and exchange rate fluctuations often cause financial turbulence, the latest federal government bonds issued by the Debt Management Office have provided an opportunity for High Net Worth Individuals (HNWIs) and corporations looking to lock in a steady, tax-exempt return on their funds.
The Federal Government, through the Debt Management Office (DMO), has offered three FGN bonds, valued at N900 billion, for subscription at N1,000 per unit.
According to a release by the DMO, the first offer is a Feb. 2031 FGN bond (seven-year reopening), valued at N300 billion, at an 18.50 per cent interest rate per annum.
The second offer is a Feb. 2034 FGN bond (10-year reopening), valued at N400 billion at a 19.00 interest rate per annum.
The third offer is a Feb. 2035 FGN bond (10-year reopening), valued at N200 billion at an interest rate of 22.70 per cent per annum.
The office said that for reopening of previously issued bonds, successful bidders will pay a price corresponding to the yield-to-maturity bid that clears the volume being auctioned, plus any accrued interest in the instrument.
A Secure, Tax-Free Investment
According to the condition of the offer, analysts have said, for a minimum investment of ₦50,001,000, investors can secure tax-exempt interest income of ₦11.3 million per year, paid semi-annually at ₦5.65 million every six months.
Over a period of 10 years, this investment would generate a total of ₦113 million in tax-free interest, with the initial principal of ₦50 million returned at the end of the term, making the total inflow to the investor ₦163 million.
Attractive Interest Rates
The interest rate of 22.60% per annum is a standout offer, providing a pre-tax equivalent rate of 29.35% for corporate investors and 32.29% for individual investors. These numbers are particularly attractive, especially when compared to the current high inflation rate in the country, which is hovering around 30%, according to the most recent Monetary Policy Rate (MPR) by the Central Bank of Nigeria. Even at an effective tax rate of 30% for individuals and 23% for corporations, the returns remain significant.
A Unique Opportunity Amid Economic Uncertainty
For financial analysts like Mr A. Ogunrinde, this investment offer stands out, particularly at a time when interest rates are expected to decline.
He said, “During the period between 2023 and 2024, Nigeria experienced significant economic shocks, particularly in the exchange rate and interest rates, with rates remaining below 22%—except for OMO (Open Market Operations) investments, which were not widely accessible to all.”
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He argued that the current offer provides a secure avenue for investors who want to lock in lucrative returns, especially in the face of anticipated interest rate reductions, which could lower yields in other investment avenues in the near future.
Considerations for Investors
Despite the compelling offer, some experts like Olanipekun Deji Djavu caution that while the offer looks good on paper, investors must also factor in the ongoing inflation rate, which is around 30%.
He said with inflation expected to rise further by 2030, reaching potentially 50%, the real returns might be affected by the increasing cost of living, eroding the purchasing power of the interest income.
He contends that, while the 22.60% tax-free interest rate offers an attractive investment opportunity, it’s important for investors to carefully assess how inflation rates and economic changes could impact their long-term returns.
For now, however, this investment provides a reliable and guaranteed passive income stream, backed by the Nigerian government, offering peace of mind for HNWIs and corporate investors.
In Summary:
Investment Amount: ₦50,001,000
Tax-Free Interest: ₦11.3 million per year
Total Inflow after 10 Years: ₦163 million
Tax-Exempt Interest Rate: 22.60% (Pre-tax equivalent rates: 29.35% for corporates, 32.29% for individuals)
Duration: 10 years
Fully Guaranteed by FGN
Sunday Michael Ogwu is a Nigerian journalist and editor of Pinnacle Daily. He is known for his work in business and economic reporting. He has held editorial roles in prominent Nigerian media outlets, where he has focused on economic policy, financial markets, and developmental issues affecting Nigeria and Africa more broadly.
