Nigeria Plans Eurobond As Borrowing Costs Rise

The Nigerian government plans to borrow between $4.5-5 billion this year from multilateral agencies and the financial markets, according to finance minister Kemi Adeosun.
In a statement distributed by the finance ministry, Adeosun said that the country expects to issue a eurobond in 2016 as the country tries to fill the gaps in its budget left by the plunge in oil prices. However, with yields on Sub-Saharan African debt rising steadily, the country may find that the market demands a high price.

Average yields on Sub-Saharan African eurobonds have increased from 5.8% in April 2015 to 9.4% in January 2016, according to Bloomberg data.

Once market darlings, borrowers such as Zambia and Ghana have come under immense pressure as a combination of profligate public financial management and slumping commodity prices have widened their fiscal and current account deficits. Adding to the upward pressure on yields, the US Federal Reserve has begun to raise interest rates.

Nigeria’s economic crisis has worsened over the past few months. Crude oil exports make up 95% of Nigeria’s foreign earnings, and the country has suffered badly from a shortage of foreign currency.

The central bank has imposed a range of capital controls in an attempt to limit the pressure on the local currency, the naira, which is traded at an official rate of 197-199 to the dollar, but has at times been selling for 300 on the black market. Foreign exchange reserves have fallen by $9 billion over the past 18 months, according to central bank figures. The Nigerian stock market lost 21% of its value in the first two weeks of trading of 2016.

The government needs debt to plug its financing gap, but has taken a number of measures that have spooked international investors. Local currency denominated debt was de-listed from a major JP Morgan index due to the imposition of capital controls, while others have scaled back their positions as they wait for a devaluation of the naira, which many believe is inevitable.

However, Nigeria’s external debt is still relatively low, and appetite for Sub-Saharan debt has remained relatively strong over the past year, albeit at high yields. A straw poll of analysts suggests that most expect investors to demand yields into the low double figures.forbes