A Likely Return To The Eurobond Market By FGN In 2020


Wednesday, December 04, 2019   /09:29 AM  / By FBNQuest Research / Header Image Credit: Strategy.kz 


According to the newswires, the finance minister said on Monday that the FGN could tap the Eurobond market in early 2020 to cover any external financing gap left after its talks with concessional lenders. This would boost reserves and ease chatter over the exchange rate. Its plans to raise N850bn in external financing in the 2019 budget have been pushed back into next year. 

We gathered from the launch of its latest Regional Economic Outlook in Lagos last week that the IMF has Nigerian public debt at 27% of GDP including any overdrafts with the CBN. This is low in an EM context. 

The debt service burden deserves more attention than the stock ratio, so we have chosen a chart showing that the burden of domestic payments has started to ease. These payments comprise 85% of total debt service (TDS).

Official data reveal that TDS accounted for 54.1% FGN's total inflows (retained revenue and assorted extra categories) in 2018, and 60.0% without the extras. These are very high ratios but the response should surely be to boost revenue collection rather than shun a return to the Eurobond market.

That market welcomes new issues from EM sovereigns. Current Nigeria yields are a minimum of 480bps below those for naira-denominated FGN bonds.


FGN domestic debt service payments (N bn)

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Sources: Debt Management Office (DMO); FBNQuest Capital Research


On the surface, we are revisiting 2015 and 2016 when the FGN sought budget support from multilateral agencies. It secured just US$600m of the US$2.5bn it sought because of their reservations surrounding the CBN circular of June 2015 listing 41 items "not valid for forex". On this occasion, we understand that the FGN is seeking project, not budget support from concessional lenders.


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