By Nse Anthony-Uko
(Sundiata Post)- Nigeria has successfully priced its 5th Eurobond of $2.5 billion, following issuances in 2011, 2013 and two in 2017.
The Notes, which comprise a $1.25 billion 12-year series and a US$1.25 billion 20-year series, will be used for the refinancing of the country’s domestic debt, the Debt Management Office (DMO) said on Friday.
With the latest issuance of $2.50 billion Eurobond Nigeria has increase its Federal Government of Nigeria (FGN) Eurobond portfolio to $8.80 billion from $6.30 billion.
According to the DMO, the 12-year series will bear interest at a rate of 7.143 per cent, while the 20-year series will bear interest at a rate of 7.696 per cent, and in each case, will be repayable with a bullet repayment of the principal on maturity.
The issuance, which will also see a change in domestic/foreign debt ratio from 80:20 to 60:40, will further reduce the cost of government borrowing, and maintain Nigeria’s net debt levels.
“Nigeria is focused on reducing the cost of our debt portfolio and ensuring we have the optimal mix between domestic and international debt.,” Mrs Kemi Adeosun, Minister of Finance said.
“The proceeds of the issuance, which would supplement the issuances we completed in 2017, will be used to re-finance domestic debt, which is high cost and short term, with lower-cost international debt, with a longer tenure.
“We will have a range of Eurobonds in issue, encompassing 5 year, 10 year, 12 year, 15 year, 20 year and 30 year bonds, giving investors a full basket of options to participate in.”
The offering has attracted significant interest from leading global institutional investors with a peak order book of over 450 per cent.
The Notes, when issued will be admitted to the official list of the UK Listing Authority and available to trade on the London Stock Exchange’s regulated market.
On her part, Patience Oniha, Director General of the DMO said: “With the successful pricing of our 5th Eurobond, Nigeria’s status as an Issuer of Eurobonds with a strong and diverse investor base has been further consolidated..
“This time Nigeria has priced a new 12-year bond at a yield of 7.143 per cent and a 20-year bond at a yield of 7.696 per cent, both of which are consistent in price with our existing portfolio.
“I am particularly pleased that the issuance will enable us to refinance a portion of our existing domestic debt portfolio, with external debt at considerably lower cost, but also that the impact of the process has already led to a reduction in the cost of domestic borrowing, and so a double benefit for the cost of our broader debt portfolio. Lower domestic rates will also benefit corporate borrowers.” The issuance is expected to close on 23 February 2018.
In order to lower costs, government repaid N198 billion worth of treasury bills in December, instead of rolling them over.
The repayment of domestic debt has resulted in a precipitous drop in yields on treasury bills to 13 percent from between 21 percent and 22 percent early last year.
While the country has a favourable debt to GDP ratio- one of the lowest in Africa- its huge interest payment to revenue ratio is raising concerns about debt sustainability.
“Debt sustainability will remain a concern despite the lower Debt-to-GDP ratio (the major argument for increasing debt stock). This is mainly because Nigeria’s sharp rising debt service/revenue ratio currently ranks very high (projected at 30.5 percent in 2018 from 32.7% in 2017) compared to peers,” said analysts at United Capital Limited.
A sudden drop in oil price and an attack on oil facilities by Niger Delta militants could damp government’s ability to pay back debt owed to creditors and send negative signals to the market.
Nigeria exited its first recession in 25 years in the third quarter of 2017, thanks to a rebound in oil production due to the relative calm in the Niger Delta region and uptick in oil price.
Available data from the DMO shows Nigeria’s debt stock stood at N19.16 trillion as at March 2017.
A breakdown shows external debt accounted for N4.23 trillion, while domestic debt stock accounted to N14.23 trillion.