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‘Eurobond yields reflect improved perception of Nigeria’s credit risk’

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‘Eurobond yields reflect improved perception of Nigeria’s credit risk’

 

High oil prices and rising external reserves are helping to improve global perception of Nigeria’s credit risk as can be seen from movement across Eurobond yields in recent times, analysts at ARM Research have said.
In a report obtained by New Telegraph, the experts stated : “Relative to FX reserves, Nigeria’s outstanding Eurobonds account for 16 per cent and in an atmosphere of rising oil prices, these instruments are largely well matched with investors facing little risk of default. “Consequently, average yields on the sovereign Eurobonds declined by 41bps over the second half – 2018 (17bps to 3.1 per cent), 2021(33bps to 4.47 per cent), and 2023 (71bps to 5.03 per cent).”
Besides, the analysts said: “The robust investor confidence was evident in the oversubscribed issuances of a debut 30-year Eurobond in November at yields, which slipped 31bps apiece in 2017. The rally in dollar bond prices emanated despite ratings downgrade 1 and further interest rate hikes in the U.S.
“The bullish trends reflect increased investor comfort with Nigeria’s dollar risk following the recovery in oil prices as Z-spreads to comparable U.S treasuries fell by 1700bps over H2 2017. Overall, the pattern across Eurobond yields reflects positive sentiments trailing improved external sector balances.”
The Director, Banking Supervision, Central Bank of Nigeria (CBN), Alhaji Ahmad Abdullahi, while briefing journalists at the end of the Bankers’ Committee meeting in Lagos last Tuesday, said the country’s credit risk has been improving due mainly to the rising external reserves. He added that the reserves had increased to $42 billion from $40.4 billion last month.
It will be recalled that the Debt Management Office (DMO) announced on January 25, that government was considering raising $2.5 billion through Eurobonds in the first quarter of this year to refinance a portion of its domestic treasury bill portfolio at lower cost.
The Office explained that the purpose of the proposed Eurobond sale was to rebalance the Federal Government’s debt portfolio by increasing the external component while reducing the domestic component in line with the country’s debt management strategy.
According to the DMO: “The proceeds of the planned $2.50 billion will be converted to naira and be used to redeem relatively more expensive domestic debt. This is expected to save about N64 billion per annum in interest cost which will help to reduce the debt service/revenue ratio and free up the fiscal space for other priorities of government.”

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