Nigeria is making a significant return to the international capital markets after a hiatus of over two years, with plans to issue Eurobonds in response to its burgeoning fiscal deficit. According to details shared with potential investors, the government intends to offer two categories of bonds: a 6.5-year bond and a 10-year benchmark bond. The expected yields are 10.125% for the shorter duration and 10.625% for the longer-term offering. The federal government aims to secure at least $500 million from foreign investments for the shorter-term bond. This marks Nigeria’s first foray into Eurobonds since March 2022, highlighting the government’s renewed commitment to mitigating the country’s fiscal hurdles.
The bonds will be issued in US dollars and adhere to the 144A/Reg S format, making them accessible to both American and international investors. Following the listing of these Eurobonds on the London Stock Exchange’s Main Market, settlement is scheduled for December 9, 2024. Investors can purchase bonds starting from a minimum denomination of $200,000, followed by increments of $1,000. The recent Eurobond auction was a pivotal event for Nigeria, ultimately raising $2.2 billion, despite the total subscription surpassing $9 billion. The breakdown includes $700 million from the 6.5-year bond, priced at a yield of 9.625%, and $1.5 billion from the 10-year bond at a yield of 10.375%.
The Debt Management Office (DMO) underscored the significance of this successful pricing, revealing that it drew interest from a global array of investors, including those from the UK, North America, Europe, Asia, and the Middle East, along with Nigerian investors. The DMO viewed this broad interest as a clear indicator of ongoing confidence in Nigeria’s macroeconomic policies and its prudent fiscal management. The level of demand was remarkable, with the order book peaking at over $9 billion, demonstrating strong support from varied investor classes, including fund managers, pension funds, hedge funds, and banks.
The revenue raised from this Eurobond sale will primarily aim to address Nigeria’s rising budget deficit, currently recorded at N4.65 trillion, driven by a combination of reduced crude oil production, lackluster tax revenues, and a lack of economic diversification efforts. The Government has set a budget deficit of N9.18 trillion for the current fiscal year, which will primarily be financed through borrowing. To facilitate the Eurobond issuance, Nigeria has engaged a consortium of renowned financial institutions, including Citigroup, Goldman Sachs, JPMorgan Chase, and Standard Chartered, with Chapel Hill Denham Advisory Limited acting as the Nigerian bookrunner. The Finance Minister, Olawale Edun, expressed that the issuance reflects increasing investor confidence in the Tinubu administration’s ongoing economic stabilization efforts.
Despite the successful Eurobond issuance, concerns continue to linger regarding Nigeria’s public debt management strategy. The nation’s previous Eurobond ventures have yielded significant debt obligations, with approximately $15.12 billion attributed to Eurobond debts, constituting around 35.24% of Nigeria’s total external debt. As servicing rates climb, projections by Fitch indicate that Nigeria’s external debt servicing is expected to increase from $4.8 billion in 2024 to $5.2 billion in 2025. This increase is attributed to more burdensome repayment terms, including repayments for past Eurobonds, emphasizing the urgent need for effective debt management strategies moving forward.
In addition, Nigeria’s recent activities in raising capital extend beyond just Eurobonds. The government has unveiled plans for Islamic Sukuk bonds to generate further revenue streams, which would mark the first issuance of dollar-based Sukuk bonds by Nigeria. However, the International Monetary Fund has flagged concerns that the issuance of dollar-denominated bonds could heighten the strain on the naira and escalate costs in the domestic securities market. There is a broader context of challenging fiscal conditions as Nigeria grapples with significant external debt obligations, compounded by low petroleum output, stressing the critical need for strategic actions to support the country’s economic framework.
In light of the broader African context, the increase in borrowing costs for African nations has soared to levels that compromise economic sustainability. According to the African Development Bank, debt servicing costs have increased by an alarming 500% for many nations borrowing from global markets. With growing private debt ownership and shifting borrowing structures, African nations, including Nigeria, find themselves in precarious financial positions as they attempt to navigate high-interest obligations while simultaneously working to stabilize their economies amidst global market pressures.
