Feb 10 (Lagos) - Yesterday, Nigeria closed out on its long-awaited Eurobond programme, raising $1 billion via a 15-year bullet bond. The issue, which was over-subscribed with bid-cover of nearly 8x was priced at 7.875% yield, extends Nigeria’s dollar yield curve by an extra 5-years. Relative to indicative 8% pricing on the offer prospectus, the actual borrowing cost on the issue looks decent and even better when compared to the most recent SSA issues with Ghana’s 5-year issue in September priced at 9.5%.
Global capital flows not quite averse to FGN dollar debt
To our minds, despite getting a lot of bad press about an inflexible exchange rate and depressed oil production, the robust subscription and better pricing on the issue implies that markets viewed Nigeria more favourably than feared.
This is view is not surprising going by trends in Nigeria’s eurobond yields which declined over 200bps in 2016 inspite of negative ratings action in 2016 and higher US interest rates. The more bullish market view reflects more comfort with Nigerian dollar risk on account of improving oil prices and lower external debt burdens (3.8% of GDP) of which only $1.5billion is in the form of non-concessionary Eurobond debt.
Overall while the successful $1 billion Eurobond issuance heralds some much needed progress on the foreign financing leg of fiscal reflationary plans, we feel that the scale of current economic challenges renders any positive assessment of the issue as largely fleeting.
To make significant headway in dealing with the current recessionary climate, we reiterate that economic managers must directly tackle the constraints to growth across oil and non-oil GDP.
Specifically, the FGN would need to make progress on conciliatory talks in the Niger Delta a pre-requisite for recovery in oil production while the CBN would need to to provide a resolution to the issue of an illiquid foreign exchange rate market.
Source - analysts at ARM SECURITIES LIMITED. THIS ARTICLE PUBLICATION IS COPYRIGHT OF ARM SECURITIES LIMITED AND NOT TO BE REPRODUCED OR REPRINTED IN ANY FORM WITHOUT THE EXPRESS PERMISSION OF ARM SECURITIES LIMITED.
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