Nigeria’s eurobond prospect lifted on back of rising oil price

Nigeria is close to appointing banks to help underwrite the country’s first international bond since 2013 as the government deals with the worst fiscal crisis in 25 years.

Standard Chartered, Citi and Nigerian bank Stanbic IBTC have been in talks with officials to arrange the eurobond sale, according to sources close to the deal, which the vice-president said last month would take place in the first quarter of 2017.

The recent rise in oil prices following a deal between Opec members, coupled with expectations that Nigeria was making progress with plans to arrange loans from bilateral and multilateral lenders such as the World Bank, is expected to strengthen the country’s position in global capital markets after years in the cold.
A successful debt sale would mark the end of a year of repeated setbacks for Nigeria. Prices for existing debt have fallen sharply as investors have shied away from Nigeria, unsettled by militant attacks in the country’s crude oil-producing delta.

Efforts by Nigeria to tap the bond market earlier this year have been frustrated by volatile oil prices, currency weakness after the peg was abandoned in June and the government’s failure to implement further reforms demanded by the international community.

Jan Dehn, head of research at Ashmore Investment Management, said that even after the government abandoned its currency peg there was a perception among investors that the naira could weaken further — leaving them reluctant to lend the country “hard” currencies such as dollars.

“People did not trust the currency,” he said. “It’s a difficult process for the country. Buhari [Nigerian president Muhammadu Buhari] inherited a lot of problems, including the difficulties with Boko Haram, the economy and the falling oil price.”

In spite of the removal of the currency peg, the official exchange rate remains far higher than the rate at which the currency changes hands in the black market. Nigerian bankers and economists say the central bank is still managing the currency instead of allowing it to float freely.

But Kevin Daly, portfolio manager on the emerging market fixed-income team at Aberdeen Asset Management, says the rise in oil price and move towards reform means there is scope for the country to tap debt markets. “Nigeria has very little external debt,” he added.

Nigeria first issued international debt in January 2011, tapping markets once again in mid 2013 to raise $1bn of five- and 10-year debt. The yield on Nigeria’s bond due in 2023 jumped from 6.6 per cent at issue to almost 10 per cent earlier this year. It now trades at 7.8 per cent.

Oil production in Africa’s largest economy has fallen sharply as attacks to energy infrastructure curtailed supplies and compounded the effects of the price of its main export falling dramatically early in 2016.

The vandalisation and production challenges meant that the country was granted an exception to the recent Opec agreement to cut output for the first time since the global financial crisis.

 

FT