Nigeria raises largest Eurobond yet with $3bn issuance

by | November 21, 2017 1:45 am



Nigeria has raised $3 billion in Eurobonds with 10 and 30 year maturities.  The Notes comprise a U$1.5 billion 10-year series and a US$1.5 billion 30-year series, which will be repayable with a bullet repayment of the principal on maturity.
The 10-year series will bear interest at a rate of 6.5 percent, while the 30-year series will bear interest at a rate of 7.625 percent.
A source with the Nigerian team that met investors yesterday morning told BusinessDay that demand for the bond totalled $11 billion but the government balked at raising that much, settling instead for $3 billion, some $500 million more than planned.
The issue takes Nigeria’s total Eurobond issuance in 2017 to $4.8 billion. This comprises a $1.5 billion issue in March and a $300 million diaspora bond maturing in June 2022.
The diaspora bond was priced at 5.62 percent while the $1.5 billion with a 15-year maturity was priced at 7.8 percent.
The yields on the $300 million diaspora bond closed at 4.78 percent as of Friday, Nov.17 while the $1.5 billion bond yielded 6.7 percent, according to latest data on the Debt Management Office (DMO)’s website.
The pricing was determined following a roadshow led by the Honourable Minister of Finance, Kemi Adeosun; the Honorable Minister of Budget and National Planning, Senator Udoma Udo Udoma; Governor of the Central Bank of Nigeria, Godwin Emefiele; the Director-General of the Debt Management Office (DMO), Patience Oniha, and the Director-General of the Budget Office of the Federation, Ben Akabueze.
The Finance Minister disclosed that the Government would utilise the proceeds of the Notes in funding the approved budgetary expenditures and for refinancing of domestic debt, as may be applicable.
Adeosun said, “Nigeria is implementing an ambitious economic reform agenda designed to deliver long-term sustainable growth and reduce reliance on oil and gas revenues while reducing waste and improving the efficiency of government expenditure.
“Our economy is beginning to recover, Gross Domestic Product (GDP) having returned to growth in 2017, but we must maintain the momentum behind our investments in order to further drive growth. That is why we are, and will continue to focus investment on the enabling infrastructure we need to broaden economic productivity.”
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 managed the issue, according to Oniha of the DMO, who said last week she was hoping to commence an investor road show by mid-November.
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.
Commenting on the Notes’ pricing, the DMO Director-General, Patience Oniha said: “With the successful pricing of our 4th Eurobond, Nigeria has become one of the few African issuers whose securities have attracted strong investor interest amongst institutional investors across the globe.
“This time Nigeria issued a new 10-year bond at a yield of 6.500% and a 30-year benchmark, priced at a yield of 7.625%, which despite the longer tenure remains cheaper than our 15-year issuance earlier this year.The 30-year is a landmark as the tenor represents the first by a sub-Saharan country other than South Africa and importantly establishes the basis for long term infrastructure funding, which is a priority for this government.”
Oniha expressed satisfaction with international investors’ recognition of Nigeria’s huge potential.
“Perhaps even more important is that with this dual tranche issuance the objective of reducing the cost of government borrowing has been achieved,” Oniha added.
Standard & Poor’s (S &P) assigned its ‘B’ long-term on the bond, five steps below investment grade. This means it’s vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.
There has been renewed investor interest in Emerging Market 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 risk 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.
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 after expanding 0.55 percent in the second quarter and 1.4 percent in the third quarter.
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.

 

LOLADE AKINMURELE & ONYINYE NWACHUKWU

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