Nigeria raises US$2.5 billion Eurobond

Nigeria has successfully raised US$2.5 billion in Eurobond as part of its on-going debt restructuring strategy aimed at increasing external debts and cutting down on domestic debts.

The country issued a US$1.25 billion in 12-year tenor Eurobond maturing in 2030 and a second tranche of US$1.25 billion in 20-year tenor Eurobond to mature in 2038. The yields on the 12-year tenor bonds came in at 7.14 percent, 425 basis points premium on 10-year US treasuries while the 20-year tenor bond was priced at 7.68 percent, 455 basis points premium on US treasuries.

Patience Oniha, Director General of the Debt Management Office had disclosed in January of plans to sell $2.5 billion of Eurobonds in the first quarter this year to refinance domestic debt.

The issuance will complete a dollar-debt program that started with selling $3 billion of Eurobonds in November.

Analysts have noted that the yield on the current bond looks a bit pricy and may have factored pre-election jitters.

However, Adewale Okunrinboye, Fixed Income and Currency Research analyst at Ecobank Research, said “Given the bearish trends observed lately across US Treasuries with the 10-year yield at four-year highs and concerns over rising US inflation, the spreads on Nigeria Eurobond sales (12-year: 425bps, 20-year: 455bps), which tightened from IPT levels (12-year: 450bps, 20-year: 488bps), seem fair under the current market setting. Notably demand was strong with bid-cover of 4.4 times which is higher than in November (3.8 times). So the sense one gets is that market pricing of risk appears higher relative to the 2017 Eurobond sales. Under the current setting I would say Nigeria paid a fair price on the USD2.5bn sale.”

The yield seemed to have shrugged off the fact that yields on Nigeria issued dollar bonds due November 2027 have fallen about 60 basis points since they were issued late last year to 5.92 percent, almost eight percentage points lower than the yield on similar maturity local-currency government bonds.

In November, Nigeria raised its biggest Eurobond – $3 billion in a two-part international bond sale as it sought to fund a fiscal deficit and reduce its local-currency debt burden and it split that offering equally between 10- and 30-year tranches.

The yield was 6.5 percent for the shorter notes and 7.625 percent for the 30-year portion, down 25 basis points on each tranche from the initial guidance. The issue received $11 billion of bids, according to central bank Governor Godwin Emefiele.

President Muhammadu Buhari’s administration is selling more foreign debt to help reduce the financing burden from paying double-digit yields on local-currency bonds.

That would help free up funds to increase investment in infrastructure and spur economic growth. The International Monetary Fund forecast the economy will expand 2.1 percent this year compared with 0.8 percent in 2017 but some other forecasts give Africa’s largest economy better prospects.

The government also plans to begin talks with JPMorgan about being included in its government bond index for emerging markets, said Oniha. The nation’s naira securities were removed in 2015 because of foreign-currency shortages.

“We would like to get back into the index,” Oniha said. Daily trading volumes for the naira have risen to about $200 million from as little as $20 million three years ago, according to Standard Chartered Plc. That bodes well for discussions on returning to the index, according to Oniha. “The securities trading was never the problem, it was always the foreign-currency liquidity,” which has now improved, she said.

The country’s success in raising the Eurobond came the same day Senate summoned the Minister of Finance, Kemi Adeosun to appear before it to explain why part of the $600 million loan obtained to revive the power sector was diverted by the Federal Government to remodel four airports across the country.

According to the Senate, there was $600 million loan from the Chinese Government for the rehabilitation of the power sector, out of which $100 million was used as counterpart funding for the remodelling of Lagos, Abuja, Kano and Port Harcourt Airports.

Also to appear before the Matthew Urhoghide-led Joint Senate Committee on Public Accounts and Power, Steel Development and Metallurgy are the Minister of Transportation, Rotimi Amaechi and the Director- General, Debt Management Office (DMO) Patience Oniha.

According to the Senate, there was the need to establish the desirability of the loan, just as it said that when the loan was being sourced by the Federal Government, it was very clear what it was for and not as counterpart funding to finance Chinese loan for the airports.

Urhoghide said: “We need to establish the desirability of the loan, it was for power sector, to develop the sector, it was for the Nigerian Electricity Bulk Trading Company (NBET) Transmission Company of Nigeria (TCN) among others. Aviation was not in the picture, Nigerian National Petroleum Corporation (NNPC) was used to secure the loan. Aviation did not apply for it, not in the list of agencies to benefit. There was no Presidential approval, Aviation was not listed as a beneficiary”.

The Senate said that it would want to know whether there was a formal letter from the Ministry of Aviation to the Finance Ministry to finance the counterpart funding, even as it said that it would want to know whether the process got the blessings of the National Assembly.

 

OWEDE AGBAJILEKE, Abuja, Endurance Okafor, Dipo Oladehinde