Updated: Nigerian Senate approves additional $500m Eurobond


March 23, 2017 | 12:45 am
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Nigeria is set to tap the international debt market for the second time in two months, after lawmakers approved an executive request, Wednesday, to float a $500 million Eurobond.
The bond will be used to fund the 2016 budget, according to Yemi Osinbanjo, the country’s vice president, who said last month, that Nigeria will target March-end for issuance.
The planned sale comes after Standard & Poor’s saved the country a downgrade, affirming its credit rating at B, five levels below investment grade and with a stable outlook on March 17.
The decision to leave Nigeria’s credit ratings unchanged from the previous rating last September, was sparked by a benign outlook for oil and it now tips the economy to grow 1.5 percent in 2017.
Nigeria, amid its worst economic crisis in 25 years, issued a Eurobond last February for the first time in almost four years, raising $1 billion in a deal that was about eight-times oversubscribed, according to the finance ministry.
Citigroup Inc. and Standard Chartered Plc had managed the sale.
“Raising an additional $500 million is positive, as it would provide much needed funds to implement the budget and boost economic activity,” said Ayodeji Ebo, acting managing director at Lagos-based Afrinvest Securities Ltd.
“Given that investor confidence is likely to benefit from the improvement in the foreign exchange market and rising external reserves, the new bond could be priced much lower than 7 percent,” Ebo added.
The previous issuance of $1 billion was priced at 7.875 percent, as investors were left frustrated by Nigeria’s lack of clarity on the naira, which they believe is overvalued, even after the central bank removed a currency peg in June.
At the time of the previous issue in February, the naira traded at N500/$ at the black market and N305/$ at the official one.
However, the naira has gone on a winning streak since then, firming by more than 20 percent.
The rally, sparked by the CBN’s increased sales of foreign-exchange forwards and looser capital controls, has aided the currency which firmed further on Wednesday March 22, trading at N395/$, the highest in at least six months.
The naira’s appreciation is supportive for risk premiums, according to Tajudeen Ibrahim, head of research at investment bank, Chapel Hill Denham.
“The market appears to be reacting to CBN Governor Godwin Emefiele’s comment that the apex bank was committed to sustaining dollar sales to prop up the naira,” Ibrahim added by phone.
Emefiele had vowed to ensure a convergence between the multiple rates in the foreign exchange market on Tuesday, at the conclusion of its monetary policy meeting, where key rates were left unchanged in line with market expectations.
The yield on Nigeria’s $1 billion bond due February 2032 fell almost 5 basis points to 7.377 percent on Wednesday, March 22.
Outstanding $500 million notes due 2018 also declined 7 basis points, to 5.375 percent, while notes due in 2021 and 2023 fell 16 and 6 basis points to 5.347 percent and 5.943 percent respectively.
Nigeria’s external debt stock stood at $11 billion as at December 2016, according to the Debt Management Office (DMO) while total debt to GDP ratio is 13.5 percent.
Although debt to revenue ratio is as high as 33 percent, analysts seem comfortable if funds realised from debt issuances are committed to funding infrastructure projects that offer return-on-investment and have multiplier effects on the economy.
S & P forecasts Nigeria’s general government debt stock to average 23 percent of GDP for 2017-2020.
Deputy Majority Leader, Ibn Na’Allah, who moved the motion for the fresh $500 million loan request to be approved, urged his colleagues to quickly  consider and endorse the request because of its importance to the implementation of the 2016 budget.
Senate Minority Leader, Godswill Akpabio seconded the motion.
In a letter dated February 22, 2017, then Acting President, Yemi Osinbajo, had written to the Senate, seeking approval for the executive to float another $500m Eurobond.
Osinbajo said the government had taken advantage of the fact that the $1billion bond was  over-subscribed and was seizing the opportunity of the favourable market conditions to issue the new $500m Eurobond.
Osinbajo recalled that the 2016 Appropriation Act had a deficit of N2.2trillion and a borrowing window of N1.8trillion.
He said the terms and conditions of the Eurobond may only be determined at the point of issuance.
The letter read in part: “Following the over-subscription of the recent USD 1 billion Eurobond issuance, we wish to take advantage of favourable market conditions to issue a Eurobond debt instrument of USD 500 million to fund the implementation of the 2016 budget, which is still ongoing.
“The Senate President may wish to note that in line with the requirement of securities issuances in the ICM, a specific resolution of the National Assembly, as a firm confirmation of the approval of the Legislature for the
Federal Government of Nigeria (FGN) to borrow the USD 500 million through the issuance of a Eurobond debt instrument in the ICM is required.
“It is important to note that the previous issuances of USD 500million, USD 1 billion (consisting of two tranches of USD 500 million) and USD1 billion in January 2011, July 2013 and February 2017, respectively, were issued at coupons of 6.75percent, 5.125percent, 6.375percent and 7.875percent based on the prevailing market conditions.
“The Debt Management Office and the Federal Government’s appointed Transaction parties to the issue are committed to working assiduously to secure the best terms and conditions for the Federal Republic of Nigeria”.





March 23, 2017 | 12:45 am
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