The federal government has returned to the international capital markets after more than two years by issuing eurobonds to tackle its 2024 budget deficit.
This is despite the Minister of Finance, Wale Edun, previously indicating that the country would refrain from issuing a eurobond, due to concerns that it could lead to higher debt costs for the country’s volatile dollar securities.
The new offering includes $500 million in bonds with a maturity of 6.5 years, in addition to a standard-sized issuance of 10-year bonds. The anticipated yields are approximately 10.125% for the shorter-term bonds and 10.625% for the longer ones.
This is Nigeria’s first eurobond issuance since March 2022. The bonds will be denominated in U.S. dollars and will feature semi-annual coupon payments. They are structured in the 144A/Reg S format, allowing access to both U.S. and international investors.
The bonds will be listed on the Main Market of the London Stock Exchange, with the settlement date set for December 9, 2024. Initial denominations will begin at $200,000, with increments of $1,000 thereafter.
The funds raised from this issuance are intended to help the Nigerian government address its growing fiscal deficit, which has been exacerbated by challenges such as disruptions in crude oil production, low tax revenues, and a lack of economic diversification.
The eurobond sale is being organized by a consortium of both international and domestic financial institutions, including Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Standard Chartered Plc, with Chapel Hill Denham Advisory Limited serving as the bookrunner for Nigeria.
Nigeria’s credit ratings are currently facing challenges, with Moody’s assigning a Caa1 (positive) rating, while both S&P Global Ratings and Fitch Ratings maintain a B- (stable) rating. The recent Eurobond issuance is viewed as a vital measure to tackle the country’s fiscal issues and to manage the escalating burden of foreign debt.
The government is contending with increased public spending, which has put additional strain on its finances. In the first half of 2024, Nigeria recorded a deficit of N4.56 trillion, equivalent to 3.72% of its Gross Domestic Product (GDP). Last month, the government revealed plans to secure $2.2 billion from foreign investors to address this budget gap. This funding is expected to consist of $1.7 billion in Eurobonds and $500 million in Islamic Sukuk bonds, with the Federal Government aiming to obtain approximately $1.2 billion from the 10-year Eurobond issuance.
This move comes as several African countries, which had previously been excluded from international markets due to rising global interest rates in 2022, are re-entering the capital markets. Nations such as Ivory Coast, South Africa, Benin, Senegal, Kenya, and Cameroon have recently successfully completed debt issuances.
Nigeria’s return to the market signals increasing confidence in its fiscal reforms and its efforts to diversify its funding sources. As Africa’s largest oil producer, Nigeria has been under significant fiscal pressure in recent years, worsened by a downturn in the global energy market and disruptions in domestic production. In response to these challenges, the country raised $900 million in September through its inaugural domestic sale of dollar-denominated bonds, intended to support the 2023 budget.
Despite these initiatives, the government continues to face difficulties in balancing public spending with revenue generation.
It is believed that substantial revenue shortfalls primarily linked to low crude oil output, may have necessitated Eurobond issuing to secure capital and address the budget deficits.
SOURCE: THESUN
