Nigeria is planning to make a comeback on international bond markets two years after its last sale of debt, as the country attempts to plug an $11bn budget deficit.
However, the cost of international borrowing for emerging markets has surged in the intervening years as a result of lower oil prices and a slowdown in China, setting the stage for a difficult sale.
Undeterred, Africa’s largest economy is finalising plans for an investor road show by the end of March, finance minister Kemi Adeosun told the Financial Times.
“We’re looking to test the Eurobond market,” she said. “We think there’s appetite. We’re finalising plans for a non-deal road show in the first quarter.”
If successful, the ensuing bond sale will be the first issuance of external debt by Nigeria since July 2013, when it raised $500m of five-year bonds and $500m of 10-year bonds, at a yield of 5.38 per cent and 6.63 per cent respectively.
Prices for both bonds have since fallen, pushing the respective yields to 8.5 per cent and 6.81 per cent, as foreign investment into emerging market bonds and equities drop to the lowest levels since the financial crisis.
Adeosun did not specify the size or maturity of the Eurobond Nigeria hopes to sell after its initial road show but said the country’s possible return to international capital markets would be one of several ways it would borrow externally this year.
Last month President Muhammadu Buhari said Nigeria’s deficit would be funded partly by domestic bonds and partly from borrowing abroad.
“We’ve decided to divide [the deficit] down the middle. We recognise the need to stimulate the economy and not crowd out the private sector”, the minister said, stressing the need not to increase interest rates by “borrowing too much domestically”.
Nigeria is rated BB- by Fitch Ratings and B+ by S&P, below investment grade, and the country’s finances have come under acute pressure in recent months as oil prices drop, swelling the budget deficit to N2.2tn ($11bn), driving down the naira and leading the government to impose measures to defend its currency, including capital controls.
Last year Nigeria was ejected from influential indices of emerging market bonds by JPMorgan and Barclays, which said the country’s problems — and new foreign exchange market policies — had made investment transactions problematic for foreign investors.
Ms Adeosun said Nigeria has also applied for budget support from the World Bank and the African Development Bank, adding that some other funding would likely come from “export support projects” with “a couple of Exim [government or semi-government agency]” banks.
Following International Monetary Fund Chief Christine Lagarde’s visit to Nigeria last week a team is in the country to assess whether its borrowing costs are sustainable.
Lagarde praised Buhari’s anti-corruption fight and said fiscal discipline could help address the economic crunch caused by the oil price crash.
Nigeria’s largest ever budget was announced by the president last month, who pledged to revive the economy by “helping industry, commerce and investment to pick up”, and increasing spending by about 20 per cent from last year.
A London-born former investment banker, Ms Adeosun was appointed finance minister in November. She told the FT shortly after her appointment that raising non-oil revenues was her top priority.
Citigroup and Deutsche Bank, which worked on the last sale of debt, declined to comment.