Nigerian eurobonds offer president-elect new funding route
A RALLY that drove yields on Nigerian eurobonds to sixmonth lows has created an opportunity for President-elect Muhammadu Buhari to tap international markets soon after he is sworn in on May 29.
Rates on Nigeria’s $500 million (R6 billion) of securities due July 2023 fell to 5.45 percent this month, the lowest since November 4. Yields have fallen by more than 300 basis points since reaching a record high of 7.83 percent on February 11.
Nigerian dollar debt has returned 7 percent this year, compared with a 2.8 percent average for peers in Africa and the Middle East, according to data.
While incumbent President Goodluck Jonathan’s administration mostly issued local currency bonds, a budget deficit that is widening as low oil prices starve Nigeria of cash means new sources of funding may be needed.
Lower dollar yields make eurobonds more enticing than naira debt, according to Yvonne Mhango at Renaissance Capital. The West African nation has sold eurobonds twice, most recently in July 2013.
“Nigeria will have to pursue the external financing option more so than they’ve done previously,” Mhango said last week. “That’s because the financing gap will be much bigger than before. Also, yields have come in nicely. That’s an opportunity for them to go that route.”
Buhari, 72, defeated 57-year- old Jonathan in a March 28-29 vote. He pledged to clamp down on corruption and defeat Boko Haram’s Islamist insurgency in the north-east when he takes over, which will mark Nigeria’s first democratic transition from one party to another.
Whether Nigeria’s debt rally continues will depend on crude prices and Buhari’s success in carrying out his pledges, including a vow to boost transparency and production in the oil industry, according to Brett Rowley, a managing director at TCW Group.
“Investors hope he will make good on campaign promises to crack down on corruption and implement structural reform, particularly in the oil sector,” he said on Friday.
Nigeria would benefit from its low debt levels if it did tap international capital markets, according to Razia Khan, the head of Africa economic research at Standard Chartered.
The ratio of debt to gross domestic product (GDP) is 10.7 percent, according to Barclays. That compares with 67 percent for Ghana and 44 percent for South Africa. Foreign debt amounts to 1.7 percent of GDP, compared with 9 percent for naira-denominated borrowings.