A team of Nigerian officials that include Finance minister Kemi Adeosun, Ben Akabueze, the director-general of the budget office and Patience Oniha, head of the Debt Management Office (DMO), will open talks with investors today in an initial attempt to raise some $2.5 billion in Eurobonds.
The Eurobond will help fund 2017’s N7.4 trillion ($20.8 billion) budget, the biggest yet in naira terms, amid a plunge in public revenues which contributed to the country’s first economic recession in a quarter of a century last year.
Citigroup, Standard Chartered Bank and Stanbic IBTC Bank will manage the issue, according to Oniha of the DMO, who said last week she was hoping to commence an investor road show by mid-November.
“We are looking to raise $2.5 billion on this road show, but it could be enlarged if investor appetite is big,” a member of the team which includes stakeholders from the private sector, said Wednesday. “We can go for as much as $5 billion,” the source told Businessday.
Fitch affirmed the bond’s rating at B+, four steps below investment grade, adding that “the rating is sensitive to any changes in Nigeria’s Long-Term Foreign-Currency,” the New-York based rating agency said on its website on Wednesday.
The Eurobond, which only got Senate approval on Tuesday, will take Nigeria’s total issues this year to $4 billion, after a $1.5 billion 15-year issue raised at 7.8 percent, in the first quarter. It was four times oversubscribed, according to the finance ministry.
Analysts say the next issuance should come at a lower cost, as Africa’s largest economy is in a better place than it was at the time of the previous issuance.
“We are now out of recession, foreign reserves have crossed the $30 billion mark,” even as a new foreign exchange window introduced in April has triggered dollar liquidity, said Ayodeji Ebo, managing director of Lagos-based financial advisory, Afrinvest.
“I expect the new bond to be oversubscribed and priced lower than 7 percent, but I fancy investors will raise questions about our debt sustainability, the trend in non-oil revenues and they would need some reassurance of what the government will do with the money,” Ebo said by phone.
There has been renewed investor interest in sovereign Eurobonds this year, as a hot pursuit for high yields lures investors to even the riskiest assets.
The latest proof of investors’ appetite for risky assets with high yields came when Tajikistan, a small nation in Central Asia with a population of 8.7 million, sold a 10-year $500 million bond at 7 percent in September 2017. It was oversubscribed.
The bond represents 7 percent of Tajikistan’s gross domestic product and dwarfs the $74 million the country holds in foreign exchange reserves.
Nigeria, Ghana and South-Africa have all sold Eurobonds this year, after what was a bleak 2016.
The commodity price rout saw Sub-Saharan Africa Eurobond issuance decline to US$5 billion in 2016, with South Africa accounting for US$4.25bn of the total issuance. Ghana was the only other entity in sub-Saharan Africa to issue a Eurobond in 2016, amounting to US$750 million.
Further, liquidity shortages in foreign currency placed additional strain on sovereigns to service hard currency denominated obligations, forcing Nigeria and Ivory Coast to delay issuing Eurobonds during 2016.
Nigeria has faced a budget shortfall arising from a drop in government revenue because of low oil prices. The crude oil rout triggered chronic dollar scarcity and Nigeria’s first recession in more than a decade last year. The economy recovered in the second quarter after expanding 0.55 percent.
Eurobonds made up more than a fifth of Nigeria’s $15.35 billion foreign debt portfolio as of September and more than half of interest paid in the third quarter, the Debt Management Office (DMO) said on Wednesday.
Foreign debt stood at $11.58 billion a year earlier.
Multilateral loans, including financing from the World Bank, accounted for 64.5 percent of foreign loans while bilateral loans with China and other countries make up 14 percent.
The DMO said Eurobonds and Diaspora bonds accounted for 21.5 percent of total offshore borrowing and 53 percent of debt service payments in the third quarter.
The International Monetary Fund has voiced concerns about rising debt risk, but the government has said its strategy would reduce Nigeria’s debt burden, boost foreign reserves and create savings in debt costs.
President Muhammadu Buhari this month presented to parliament a record N8.61 trillion budget for 2018 and said the government would borrow abroad to cover half of its deficit for next year.