• Friday, May 24, 2024
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Twitter ban: Investors may demand higher yield for Nigeria’s Eurobond

DMO lists 2 FG bonds for subscription in first 2024 offer

The N90.7 million ($250,600) Nigeria is losing per hour for banning Twitter is not the only cost Africa’s largest economy is paying for shutting down the microblogging platform.

Nigeria could be paying more to investors when it goes to the international market to issue the planned $3 billion Eurobond later this year.

The ban, according to analysts, will increase Nigeria’s risk premium which was already heightened by the recent insecurity challenges in the country.

Nigeria plans to issue $3 billion or more in Eurobonds to fund the 2021 budget deficit as international capital markets (ICM) open up and interest rates declined, the government said after the coronavirus pandemic disrupted markets last year.

“The Twitter ban will make foreign investors price down the bond due to the regulatory risk that comes with investing in Nigeria going forward,” Yinka Ademuwagun, investment management analyst at ValuAlliance Asset Mgt, said.

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According to him, Nigeria’s decision to ban Twitter will send the wrong signals to foreign investors about government policy and inconsistencies. “We have had had issues of capital control, where investors who wanted to exit were trapped due to lack of FX.”

Before the Twitter ban which occurred on Friday night after the social media site deleted a tweet by President Muhammadu Buhari that threatened secessionist groups in the southeast who were alleged to be responsible for attacks on government offices, Nigeria had an opportunity to issue the Eurobond at a cheap rate due to the increase in crude price to above $70/ barrel.

“Coupled with the current security upheavals in the country, we expect to see country risk premium increase. This does not necessarily mean the Eurobond plans may not be successful but we could be priced at higher yields considering the international investor community concern,” Ayorinde Akinloye, investment research analyst at United Capital, said.

In a letter to the Senate seeking approval for the debt raise President Muhammadu Buhari said “the plan is to raise the sum of $6.183 billion from a combination of sources.”

From recent trends in the international capital market (ICM), he said it was now possible for Nigeria to raise funds in the ICM. ”We estimate that Nigeria may be able to raise $3 billion or more, but not more than $6.183 billion in a combination of tenors between five to 30-years.”

Reuters recently quoted the director-general of the Debt Management Office (DMO) as saying the government is now planning to choose Eurobond advisers through an open bid process.

According to her, the amount to be raised would be within the foreign borrowing plans for 2021.

Explaining how the ban of the social media platform may impact Nigeria’s Eurobond issuance, Ademuwagun said, “the Twitter ban means investors are going to price down the Eurobond.”

With the inverse proportion of yield and price, it means that investors would increase the rate they would be asking for when Nigeria issues its Eurobond.

The rising crude price which jumped above $70 per barrel in June, the first time since the outbreak of the COVID-19 pandemic, was expected to lessen Nigeria’s risk premium and more particularly, the risk of FX concerns.

Investors were already demanding higher returns from Nigeria to be holders of its debt as compensation for tolerating its high-risk environment in the first quarter of this year.

The extra compensation investors demand to hold Nigeria’s benchmark 10-year bond rather than the 10-year US Treasury hits 9.4 percent in February from 8.9 percent in the same period last year.

That was a sign that investors’ risk perception of Nigeria had risen over that period. The trend is curious given that oil prices are rallying, analysts had said.

“They are approaching the market anytime soon and so the timing is not favourable for Nigeria in the sense that the government’s decision to ban Twitter will affect investors’ confidence in Nigeria,” Ademuwagun said.