Nigeria sells US$1 billion to Eurobond Market Despite Investors’ Naira Concern

LAGOS (Capital Markets in Africa) – Nigeria returned to international capital markets for the first time since 2013 and sold US$1 billion of 15-year bonds at 7.875 percent, which is below the initial target of about 8.5 percent. The US$ 1 billion Eurobond was approved by the Nigeria’s parliament to help finance its budget deficit -mainly for capital expenditures.

Nigeria’s economic growth and U.S. dollar earnings are likely to gradually improve in 2017, supported by a recovery in oil production and oil prices,” Moody’s Investors Service says in a statement before Nigeria’s sale of US$1 billion of Eurobonds. The 15-year notes are rated B1, four steps below investment grade. In addition, the rating agency stated, militancy in oil-rich Niger River delta will remain a “latent threat” to the economy, Scarcity of dollars — exacerbated by the soft capital controls imposed by the Central Bank of Nigeria — is likely to continue to negatively affect important sectors of the economy. While Nigeria probably won’t change its naira policies significantly, “a gradual easing of restrictions is possible as foreign-currency receipts improve with rising oil production.

This is the longest-dated dollar securities issued by Africa’s most populous country, having only sold five- and 10-year Eurobonds previously. When Nigeria last turned to international capital markets in 2013, oil, its main export, was at about $110 a barrel and the economy was growing more than 5 percent annually. Crude prices have since halved and gross domestic product contracted in 2016 for the first time in 25 years.

Investors bid for more than seven times (c.US$7.8 billion) the amount offered, an indication of confidence in the Nigerian economy prospects, in spite of investors worried about the naira. Citigroup Inc. and Standard Chartered Plc are managing the sale.

The yield on Nigeria’s existing dollar bonds due in 2018, 2021 and 2023 are traded at 4.080 percent, 5.881 percent, and 6.536 percent on Thursday.