Nigeria to issue its first Eurobond after two years

Nigeria is poised for a return to the international debt market this year, with plans to issue its first Eurobond since 2022.

The move to issue Eurobond follows recent successful issuances by several other African nations including Benin Republic and Ivory Coast that signalled renewed investor appetite for the continent’s debt.

Patrick Curran, senior economist at Tellimer, a London-based research firm, who spoke to BusinessDay recently, said that like Kenya, Nigeria can tap into the Africa Eurobond rally.

“I think Nigeria could tap the market if it wanted to, but would probably have to pay relatively elevated yields of around 10 percent to do so,” Curran said.

On February 12, Kenya tapped the international bond market to raise cash and buy back a 10-year Eurobond of $2 billion that matured in June this year. The $1.5 billion bond, which will mature in 2031, was oversubscribed four times, with a yield of 10.375 percent.

Also, Benin Republic’s first-ever dollar-denominated bond, a $750 million issue, was oversubscribed to the tune of $5 billion on February 7 as investors lapped up the debt of the small West African nation.

The bond sale by Benin Republic came two weeks after Ivory Coast raised $2.6 billion at a rate of between 8.5 and 8.75 percent in an oversubscribed Eurobond auction.

“Recent debt sales in Africa show how investors are snapping up riskier bonds as the prospect of interest-rate cuts in the US takes benchmark yields off their peaks,” FirstBank said in its recent weekly Eurobond commentary.

Curran also said that investors are encouraged by the recent devaluation and monetary policy tightening.

“However we are waiting to see if the government stays the course by allowing the currency to trade freely and tightening monetary policy further, while also hopefully tackling the issue of fuel subsidies, before turning too bullish,” he said.

Last month, the Olayemi Cardoso-led Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) jacked up the main interest rate by 400 basis points to 22.75 percent and has mentioned a possible further rate hike at the next meeting this month.

In June, the apex bank merged all segments of the foreign exchange market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.

The liberalisation of the FX regime as part of measures to revive the economy led to a large devaluation of the naira.

The currency depreciated from N463.38/$ to N1,615.94/$ as of March 13. At the parallel market, the naira depreciated to 1,615.93/$ from 762/$.

Bloomberg reported that Citibank NA, Goldman Sachs, JPMorgan Chase & Co were hired as advisors on the proposed Eurobond issuance.

The last time Africa’s most populous nation tapped the international debt market was in March 2022, when it raised $1.25 billion through a seven-year Eurobond.

Sources close to the deal were quoted as saying Nigeria has also hired Standard Chartered Bank and Lagos-based Chapel Hill Denham as advisers.

In a conversation with BusinessDay Ibrahim Tajudeen, chief economist at ChapelHillDenham, confirmed that the company is one of the advisers of the deal. It was also an adviser on the previous Eurobond auction.

On the price and size of the Eurobonds, he said: “It is still very early to begin to speculate around the size and the pricing; preliminary engagements and considerations are going on.”

Segun Adams, an analyst at Afrinvest, said the yield of the planned Eurobond might be 11 percent.

Nigeria has a Eurobond maturity due next year amounting to $1.2 billion, which would add to over $1.0 billion typically used to service external obligations annually.

According to Nigeria’s budget document, the overall budget deficit is N9.18 trillion for 2024. This represents 3.88 percent of GDP, and the government is betting on debts (N7.83 trillion) and proceeds of privatisation (N298.49 billion) and drawdown on multilateral and bilateral loans secured for specific development projects (N1.05 trillion) to finance the deficit.

FirstBank had said in its weekly Eurobond commentary that it had seen a growing appetite for Nigeria risk from international players.

Jay Powell, the US Federal Reserve chair, said last Thursday that the US central bank is not far from having the confidence to start lowering borrowing costs.

“Our Angola, Egypt, Ghana, and Nigeria curves have all opened positively off the back of those dovish remarks,” FirstBank said.