Nigeria is returning to the international capital markets for the first time in over two years, issuing Eurobonds to bridge its growing fiscal deficit.
According to a document presented to potential investors, which was seen by The PUNCH on Monday, the government will offer a 6.5-year bond and a 10-year benchmark-sized bond, with expected yields of 10.125 per cent for the shorter term and 10.625 per cent for the longer-dated bonds.
For the shorter-term bond, the Federal Government hopes to get at least $500m from foreign investors.
This marks Nigeria’s first Eurobond issuance since March 2022, signalling a renewed effort to address the country’s fiscal challenges.
The bonds, denominated in US dollars, will be structured in 144A/Reg S format, making them accessible to both US and international investors.
They will be listed on the London Stock Exchange’s Main Market, with the transaction set to settle next week Monday, December 9, 2024.
Bond denominations will begin at $200,000, with multiples of $1,000 thereafter.
The PUNCH further learnt that Nigeria has raised $2.2bn through its latest Eurobond auction, marking a pivotal moment in the country’s ongoing efforts to address its growing fiscal deficit.
While Nigeria recorded a total subscription of over $9bn, only $2.2bn was allotted.
The allotments included $700m for the 6.5-year bond priced at 9.625 per cent and a larger $1.5bn for the 10-year bond priced at 10.375 per cent.
In a statement on Monday, the Debt Management Office said, “The Federal Republic of Nigeria successfully priced $2.2bn in Eurobonds maturing in 2031 (6.5-year) and 2034 (10-year) in the international capital markets on December 2, 2024, with $700m and $1.5bn placed in the 2031 and 2034 maturities, respectively. The 6.5-year and the 10-year. The notes were priced at a coupon and re-offer yield of 9.625 per cent and 10.375 per cent, respectively.”
The DMO also noted that the bonds attracted a wide range of investors from multiple jurisdictions including the United Kingdom, North America, Europe, Asia, Middle East and participation from Nigerian investors.
It described that “as an expression of continued investor confidence in the country’s sound macro-economic policy framework and prudent fiscal and monetary management.”
The statement added, “The transaction attracted a peak order book of more than $9bn. This underscores the strong support for the transaction across geography and investor class. With respect to the investor class, demand came from a combination of Fund Managers, Insurance and Pension Funds, Hedge Funds, Banks and other Financial Institutions.”
The proceeds from the Eurobond sale will be used to support Nigeria’s budget, which is facing a record deficit of N4.65tn, driven by a combination of low crude oil output, weak tax revenue, and insufficient economic diversification.
The PUNCH observed that Nigeria’s six-month deficit is about 3.72 per cent of its Gross Domestic Product.
The Federal Government had set a budget deficit of N9.18tn (about 3.88 per cent of the country’s GDP), which will be majorly financed through borrowing.
According to the document seen by The PUNCH, the Federal Government has engaged a consortium of international and domestic financial institutions, including Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Standard Chartered Plc, to manage the Eurobond issuance, with Chapel Hill Denham Advisory Limited acting as the Nigerian bookrunner.
Quoted in the statement by the DMO, the Minister of Finance and Coordinating Minister of the Economy, Mr Olawale Edun, said, “Today’s successful issuance signposts increasing confidence in ongoing efforts of the President Bola Tinubu, administration to stabilise the Nigerian economy and position it on the path of sustainable and inclusive growth for the benefit of all Nigerians. The broad range of investor appetite to invest in our Eurobonds is encouraging as we continue to diversify our funding sources and deepen our engagement with the international capital markets.”
Also, the Governor of the Central Bank of Nigeria, Olayemi Cardoso, said, “This outcome underscores the growing confidence of investors and the resilience of the Nigeria credit, and evidence of our improved liquidity position and continued access to international markets to support the financing needs of the government.”
The Director-General of the DMO, Patience Oniha, commented on the Notes’ pricing, saying, “With the successful pricing of the notes on intra-day basis, Nigeria has registered a landmark achievement in the international capital market. The size of the Orderbook at approximately 4.18x of the offer amount, and the strong and diverse investor base helped to price the new 6.5-yr at 9.625 per cent, while new 10-year Notes was priced at 10.375 per cent. The DMO remains committed to maintaining transparency and open communication with investors and stakeholders and appreciates the continued confidence and support of the international and Nigerian investors who participated in the pricing.”
In March 2022, the country raised $1.25bn through Eurobond issuances.
Last year December, the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, hinted that Nigeria was contemplating issuing Eurobonds later in the year if the rates are considerably lower, stating that major issuers have informed the country of the possibility this year.
He noted, “It is a matter of discussion at the moment, but we think we will get the support because we are continuing with our reforms.”
Earlier in March this year, it was reported that the Federal Government enlisted the expertise of leading global investment banks, including Citibank NA, JPMorgan Chase & Co, and Goldman Sachs Group Inc., to guide its forthcoming Eurobond issuance planned for June 2024.
It also appointed Standard Chartered Bank and the Lagos-based financial advisory firm Chapel Hill Denham to consult on this venture.
However, by September this year, the Minister of Finance, Wale Edun, said that the country would not issue a Eurobond, citing concerns that such a move could expose Nigeria’s volatile dollar securities to higher debt costs.
The minister later rescinded his words by November when he told journalists at the State House in Abuja that the Federal Government planned to raise approximately $1.7bn through the issuance of Eurobonds to help finance the revenue shortfalls of the 2024 budget.
Edun also revealed that the government intends to issue Islamic Sukuk bonds to raise an additional $500m as part of its international money market instruments to generate capital.
If the government issues the $500m Sukuk bond, it will be the first dollar-based Sukuk issued by the Nigerian government.
In September, Nigeria issued its first $500m domestic foreign currency-denominated bonds, which were oversubscribed to $900m.
Meanwhile, the International Monetary Fund expressed concerns about Nigeria’s strategy to issue dollar-denominated bonds.
The Fund warned that such measures could intensify pressure on the naira and increase the costs associated with naira securities.
Also, the IMF highlighted that the federal government’s plan to introduce domestic foreign exchange securities aimed at improving dollar liquidity in the official market could lead to market fragmentation.
With significant revenue shortfalls largely driven by low crude oil output, the need for a Eurobond is becoming increasingly critical to raise capital and address budget deficits, as the government spends more than it earns this year despite higher revenue.
As of June 2024, Nigeria had $15.12bn Eurobond debt, which was 35.24 per cent of the country’s total external debt of $42.9bn.
The global credit ratings agency, Fitch, earlier projected Nigeria’s external debt servicing to rise by $400m to $5.2bn next year.
It noted external financing obligations through a combination of multilateral lending, syndicated loans, and potentially commercial borrowing will raise the servicing from $4.8bn in 2024 to $5.2bn in 2025.
The anticipated servicing includes $2.9bn of amortisations, including a $1.1bn Eurobond repayment due in November.
It said, “External debt service will rise in 2025. Government external debt service is moderate, expected at $4.8bn in 2024 and $5.2bn in 2025 (with $2.9bn of amortisations, including a $1.1bn Eurobond repayment due in November). The government plans to meet its external financing obligations through a combination of multilateral lending, syndicated loans, and potentially from commercial borrowing.”
The PUNCH earlier reported that the Federal Government spent $3.58bn servicing its foreign debt in the first nine months of 2024, representing a 39.77 per cent increase from the $2.56bn spent during the same period in 2023.
The significant rise in external debt service payments shows the mounting pressure on Nigeria’s fiscal balance amid ongoing economic challenges.
Over the weekend, the African Development Bank’s Vice President and Chief Economist, Prof Kevin Urama, said African nations are grappling with a staggering 500 per cent increase in debt servicing costs when borrowing from global markets.
He said this at the 5th African Union Extraordinary Session of the Specialised Technical Committee on Finance, Monetary Affairs, Economic Planning, and Integration in Abuja, Nigeria, on Saturday.
Urama explained that the shift towards private creditors has exacerbated Africa’s debt burden, with about 49 per cent of Africa’s debt being privately owned by the end of 2023.
This figure is expected to rise to 54 per cent by 2024. The significant change in debt structure has led to African countries now paying five times more in interest on loans compared to borrowing from multilateral institutions such as the AfDB or the World Bank.
He said, “The structure of debt has changed significantly with about 49 per cent of Africa’s debt privately owned at the end of 2023, and this is expected to reach about 54 per cent in 2024.
“The changing structure of debt toward private creditors comes with opportunities and challenges. For example, African countries are paying 500 percent more in interest costs when borrowing in international capital markets than when borrowing from multilateral development banks such as the African Development Bank, the World Bank.
“Using short term, high-cost debt to finance long term development projects, therefore, has implications for debt sustainability in the medium to long terms.”
The AfDB VP noted that this sharp rise in borrowing costs is particularly concerning given the continent’s growing debt crisis.
He outlined that since 2010, Africa’s public debt has increased by 170 per cent, largely due to structural issues within the global debt system, recent global shocks, and weaknesses within Africa’s own macroeconomic frameworks.
He added that between 2015 and 2022, the average debt servicing costs for 49 African countries surged from 8.4 per cent of GDP to 12.7 per cent.
