What is a bond?A security representing the debt of the company or government issuing it. When a company or government issues a bond, it borrows money from the bondholders; it then uses the money to invest in its operations. In exchange, the bondholder receives the principal amount back on a maturity date stated in the indenture, which is the agreement governing a bond’s terms. In addition, the bondholder usually has the right to receive coupons or payments on the bond’s interest… The higher the interest rate on a bond is, the more risky it is likely to be. Financial dictionary
A eurobond is a bond denominated in a currency not native to the issuer’s home country. Eurobonds are commonly issued by governments, corporations, and international organizations. Investinganswers
Eurobond is a bond that is sold outside the country of the currency in which it is denominated. The euro part of the name derives from the fact that Europe was the first place where such bonds (normally denominated in dollars) were sold. It is not to be confused with bonds denominated in euro. Ft lexicon
How Eurobond Works (Example)
The Nigerian government or a company incorporated and having its headquarters in Nigeria goes to Canada or other part of the world to sell bonds denominated in US Dollars. US Dollars is neither a currency used in Nigeria nor used in the country where the bond was sold.
Unlike foreign bonds that is denominated in the currency of the foreign country where the bonds were sold.
Eurobonds are traded on the stock exchange much like other bonds and government securities and like other bonds, eurobonds obligate the borrower to pay a certain interest rate and principal amount according to the terms of the indenture. However, eurobonds often pay interest annually and principal is paid back at the expiration of the bond.
Nigeria’s ministry of finance announce on Thursday that the country Eurobond of $1 billion was oversubscribed by almost eight times with order in excess of $7.8billion.
According to Bloomberg “Africa’s most-populous nation returned to international capital markets for the first time in almost four years Thursday, selling $1 billion of 15-year bonds yielding 7.875 percent, below the initial guidance of about 8.5 percent. Investors placed more than $7.8 billion of bids, according to a statement from the finance ministry”.
The bond which was the 3rd in the series after the 2011 and 2013 issues was issued under Nigeria’s newly established Global Medium Term Note programme will be used to fund capital expenditure in the 2017 budget.
The Nigerian Eurobond has February 16, 2032 as maturity date for repayment on the principal, and is expected to yield interest at a rate of 7.88 percent.
According Mrs Adeosun, the Nigerian finance minister “Nigeria is implementing an ambitious economic reform agenda designed to deliver long-term sustainable growth and reduce reliance on oil and gas revenues while reducing waste and improving the efficiency of government expenditure.
“At the heart of the agenda is a commitment to invest in developing Nigeria’s infrastructure through a target 30 per cent annual budget commitment to capital expenditure.
“We are establishing the building blocks for long-term growth and making the hard decisions that must be made to reset our economy appropriately.”