Nigeria’s urgent need of cash was evident Thursday as Africa’s top oil producer sidestepped rising global interest rates to sell dollar bonds of $1.25 billion.
Sources familiar with the issuance told BusinessDay that the government sold the 7-year Eurobond at 8.375 percent, a premium over its dollar bonds due 2028, which currently trade at a 7.83 percent yield.
Orders for the offering totalled $3.9 billion, according to the sources who said the government would have borrowed more but balked at the yields investors were demanding.
Nigeria’s move shocked global fund managers who felt the market conditions did not support a Eurobond sale at a time when borrowers have been on the sidelines since Russia’s invasion of Ukraine pushed up funding costs.
The timing of the deal also coincides with rising yields worldwide as global central banks raise interest rates to pre-pandemic levels to tame rising inflation.
“It was unexpected,” Tatonga Rusike, the London-based sub-Saharan Africa economist at Bank of America Corp, said of Nigeria’s Eurobond sale.
“Our base case expectation for Nigeria’s issuance was in the second half” of the year, Rusike said, though admitting that despite high oil prices, the government continues to run a budget deficit, requiring external financing.
Nigeria’s return to the international debt market at a time investors are wary of the volatility across financial markets shows the government’s urgent need for cash.
Nigeria, which should benefit from the rally in oil prices, is unable to do so due to challenges from oil theft to low production and the rising cost of a controversial petrol subsidy bill which the government said it was taking the Eurobond to partly fund.
The World Bank estimates Nigeria’s subsidy bill will top N4 trillion ($9.6 billion) this year.
“Nigeria could have afforded to wait a bit longer to tap markets were it not for its urgent financing needs,” a senior investment banker who did not want to be named said.
“It’s shocking the pain we are willing to go through to keep the costly petrol subsidy in place,” the banker said.
Nigeria and Turkey are the only two sovereigns to have raised dollar debt since the Russia-Ukraine turmoil.