10-09-2015 by 
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Recently the Government conducted bond auction on the 15.54% FGN Feb 2020 and the 12.1493% FGN Jul 3034.  One unique thing about these issues is that they are reopening.

What is a reopened Issue of Bonds.

By definition, reopening of a bond auction is the system of allowing trading of a bond contract to resume, after trading had been suspended or ended for a period of time. Therefore a security reopening involves issuing additional amounts of a previously issued security, in this case, a bond. When a security is reopened, it is reissued with the same maturity date and coupon interest rate as the original security, but with a different issue date and usually a different purchase price.  Depending on the market interest rate at the time of reissue, the price of the reopened security could be greater than, less than, or equal to the price of the original issue.  This is because the price of a bond is mostly determined by movements in interest rate such that if interest rate increases, the price of bonds decreases and vise visa.  Therefore, if the price determined at the reopening exceeds the par value of the security, the purchaser will pay a premium, and if the price determined at the reopening is less than the par value of the security, the purchaser will buy at a discount.

Depending on the timing of the reopening, the purchaser may have to pay accrued interest because they are usually sold at dirty price. The dirty price is the price of a bond including any interest that has accrued since the last coupon payment. However, the interest paid is recovered with the first interest payment.

A look at the two bonds above shows that the 15.54% FGN Feb 2020 pays interest on Feb and August 13th each year for August 14th settlement, therefore accrued interest paid by the buyer is only for one day. Not so with the 12.1493% FGN Jul 2034

Summary

  • The maturity date of the reopening is the same as the maturity date of the original issue.
  • The coupon rate of the reopening is the same as the coupon rate of the original issue.
  • The price of the reopened security could be greater than, less than, or equal to the price of the original issue.
  • The purchaser may have to pay accrued interest.

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