The Debt Management Office (DMO) yesterday announced that it plans to appoint advisers for a $3.3 billion Eurobond issue through an open competitive bid process and expects to complete an approval process for the sale soon. According to the DMO, the new Eurobond will be used to partly fund the Federal Government’s 2020 budget deficit and refinance an existing $500 million eurobond due in January next year.
“Whilst the approval process … is expected to be completed soon, transaction advisers … will be through an open competitive bidding process,” the DMO said. Citigroup, Standard Chartered Bank and FSDH Merchant Bank acted as financial advisers on the last Eurobond sale. Nigeria has been considering a dollar bond issuance after staying away from the international debt market in 2019 due to time constraints before the end of its budget cycle.
The country held its last Eurobond sale in 2018, its sixth outing, where it raised $2.86 billion. Nigeria’s Eurobond plan comes after neighbouring Ghana sold a $3 billion Eurobond last week that was five times oversubscribed. Investors are seeking high-yielding debt despite the possible impact that the outbreak of coronavirus in China could have on its major trading partners in Africa. Nigeria has been borrowing to fund growth after a 2016 recession slashed income and weakened its currency.
In December, ratings agency Moody’s downgraded Nigeria’s outlook to negative from stable, citing increased risk to government revenue. Stressing that it is mindful of rising debt cost, the DMO said: “The plan … is to first maximize financing from relatively cheaper concessional sources where available, and the balance, if any, … through the issuance of Eurobonds.” Following the announcement by the Federal Ministry of Finance on Wednesday that Nigeria will return to the international debt markets this year with a $3.3 billion Eurobonds sale, analysts at FBNQuest Research had said in a statement that they back the move despite concerns about the nation’s rising debt profile.
As the analysts put it:“President Muhammadu Buhari has asked the National Assembly for its go-ahead for the issuance of US$3.3bn. While we expect numerous health warnings around the FGN’s indebtedness in response to this news, we anticipated this move and indeed welcome it.”
While noting that: “A Eurobond issue is a far quicker operation than negotiating project loans from multilateral and bilateral partners,” the analysts also pointed out that Eurobond sale proceeds feed directly into gross official reserves.”