FBNQuest backs FG’s planned $3.3bn Eurobonds sale

Analysts at FBNQuest Research have expressed support for the Federal Government’s decision to return to the international debt market with a $3.3 billion Eurobonds sale.

News agencies on Tuesday reported Federal Ministry of Finance spokesman, Mr. Yunusa Abdullahi, as saying that President Muhammadu Buhari will seek National Assembly approval to sell the Eurobonds this year, adding that out of that amount, $2.8 billion is earmarked as external financing for the 2020 budget while $500 million is for debt refinancing.

According to him, government will embark on an international road show once lawmakers approve the issuance.

Commenting on the development in a note obtained by New Telegraph yesterday, the FBNQuest analysts said: “According to the newswires, 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.”

Reasons proffered by the analysts for supporting the FG’s move include the fact that “a Eurobond issue is a far quicker operation than negotiating project loans from multilateral and bilateral partners; Eurobond sale proceeds feed directly into gross official reserves.”

The analysts said: “A Eurobond issue is a far quicker operation than negotiating project loans from multilateral and bilateral partners. It should also be a smooth operation, given the chase after yield by fixed-income investors. This chase can be seen in the popularity of the CBN’s OMO bills with foreign portfolio investors.

“Recent sovereign Eurobond issuers include Gabon and Ghana, which has a good growth and reform story to tell but a worse debt stock ratio than before debt cancellation. Ghana’s was close to five times oversubscribed, and Gabon’s three times. Benin is said to be coming to the market, presumably with a EUR-denominated issue.”

“The FGN has a decent story to tell, based upon a reasonable external balance sheet although without the comfort of an IMF programme in place. Its previous issuance dates from November 2018, when its distance from the Fund was not a stumbling block,” they added.

They also pointed out that with Nigeria having a huge infrastructural deficit that requires annual investment needs upwards of $10billion, and with Federal Government’s  own capital spending, concessionary loans from its external partners and private-sector support together, falling  short of these needs, “the transformation of the economy requires an overhaul of the infrastructure (and more besides).

“Other than dependence on oil revenue, the principal weakness of the macro story is the debt service/FGN revenue ratio. Tax collection is rising, albeit from a very low base.

Additionally, domestic borrowing rates have crashed, leaving a fair bit of headroom around the debt service projections for 2020 and beyond,” they said.

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