Nigeria suspends planned Eurobond sale over market conditions

A planned Eurobond sale by the Nigerian government has been delayed due to unfavourable market conditions, sources familiar with the matter inform BusinessDay.

The sale, which was scheduled for Wednesday, was supposed to help ease a crunching dollar shortage in Africa’s largest economy and finance the government’s spending plans.

The sources say the Eurobond was supposed to be $2 billion but strong appetite could have seen it rise to $4 billion.

Rising interest rates in developed markets has dampened the appetite of foreign investors for risky emerging and frontier market assets.

In Nigeria’s case, rising oil prices should have been enough to sway investor sentiment in favour of Africa’s top oil producer, but an expensive petrol subsidy practice has wiped out the gains of the highest oil price since 2014. Dwindling oil production is also muting the gains of the oil price rally.

Yields on Nigeria’s existing Eurobonds are rising despite Brent crude being only a short crawl away from $100 per barrel, at $97. The escalating Russia-Ukraine tension is the latest trigger for the oil rally.

“It is quite abnormal that foreign investors are not interested in Nigeria as much as they should when most oil exporters are benefitting, but then when you look closely you see why investors are not excited,” according to one of the sources.

“Yields on existing bonds have gone up and investors will demand higher than those rates for a fresh issue, which may prove too expensive for the seven and 12-year bonds,” the source says.

The yields on Nigeria’s existing Eurobonds jumped Wednesday, with the September 2028 bond rising the most, according to Bloomberg data.

The International Monetary Fund expects Nigeria’s interest payments as a percentage of revenue to hit 92 percent this year, the highest of any country globally.
Read also: For first time, investors dump Nigeria Eurobonds despite oil rally

At no point in Nigeria’s history has a rally in oil prices failed to resonate with foreign investors until now.

A falling bond price/rising yields are often associated with higher risk consideration, while a rising bond price/falling yields are a sign of strong investor appetite.

Typically, Nigeria’s Eurobonds do well when oil prices increase. For instance, it took a resurgent oil price in January 2021 for Nigeria’s Eurobonds to recover from an all-time low in March 2020 when oil prices bottomed amid the COVID-19 pandemic and Eurobond yields hit a record 12 percent.