Foreign investors are showing no interest in Nigerian debt at a time when they are lapping up other emerging-market dollar bonds.
Appetite for emerging-market bonds have soared this year, with borrowers taking the opportunity to sell record bonds to investors who are hunting for higher returns amid a slowdown in US interest rates.
In the first four days of 2024, some $24.4 billion worth of bonds were sold by emerging-market governments from Mexico and Indonesia (Nigeria’s MINT peers) as well as corporates.
That’s the busiest start to a year on record for dollar and euro-denominated debt issuance out of developing nations, according to Bloomberg data.
Nigeria, on the other hand, which would have been tempted to tap the Eurobond market to ease a chronic dollar shortage, is not getting the same attention as other developing markets.
The yields on each of its outstanding Eurobonds have all gone up this year, according to data published by the Debt Management Office.
The yield on the government’s $1.25 billion Eurobond issued in 2022 rose to 10.4 percent Wednesday compared to 10.08 percent where it opened on the first trading day of 2024.
The Eurobonds with the closest maturity among the outstanding bonds suffered the biggest increases. The yield on the $1.5 billion bond maturing in November 2027 rose by 70 basis points, the highest among the bonds, followed by the $1.1 billion bond maturing in November 2025 which rose by 60 basis points.
High interest rates had spooked Nigeria and other developing countries from the international bond market but with rates easing, debt appetite is rising again.
But with the 10-year US rate falling back to the 4 percent area, the mood is different from both borrowers and investors.
In Nigeria’s case however, acute dollar shortages seem to be overshadowing lower interest rates.
“Investors still have doubts about how quickly the government can boost its dollar revenues, especially as a good chunk of the oil to be produced this year has been locked in forward sales,” a fund manager based in London said.
“The FX shortage is top of everyone’s mind when they think about Nigeria, although there’s a lot more optimism that the crisis stands a better chance of being resolved today than at any other point in the last eight years,” the fund manager said.
Nigeria is indeed making moves to restore investor confidence in its foreign exchange market after eight years of carnage.
The Central Bank of Nigeria (CBN) has cleared a part of the FX backlog that has kept investors on the sidelines and has signalled a new direction for FX policy following the big devaluation in the naira last June. Airlines and international banks are among those that have been settled.
The naira has been allowed to weaken to as low as N1,000 per US dollar in the official market as the CBN aims for real price discovery.
A $2.25 billion facility from African Export-Import Bank (Afreximbank) and other investors has not yielded the expected results in stabilising the naira.
The Nigerian National Petroleum Company Limited had in August announced that it had secured a $3 billion emergency loan from the Afreximbank to stabilise the country’s volatile foreign exchange market.
Afreximbank acted as the lead arranger of the $3.3 billion loan, some other sub-lenders include Vitol, Guvnor, one of the world’s largest energy trading houses by turnover, Sahara Energy Group, Oando and the United Bank for Africa, which contributed $100 million.
The naira sold for N874.79 per dollar in official trading on Thursday, according to FMDQ data, a significant decline compared to the previous day’s rate of N1,082 per USD.
Curiously three-month forwards increased to N1,002 per US dollar compared to N982 per USD the previous day, a sign of the continued struggle of the naira.