A Return to the Eurobond Market


Wednesday, February 12, 2019 10:18 AM / By FBNQuest Research/ Header Image Credit: Strategy.kz 


Several recent daily notes have commented upon the latest data releases by the Debt Management Office (DMO), yet we make no apologies for returning to the subject in view of the news that the FGN is planning a return to the Eurobond market. According to the newswires, President Muhammadu Buhari has asked the National Assembly for its go-ahead for the issuance of US$3.3bn. While we expect numerous health warnings around the FGN's indebtedness in response to this news, we anticipated this move and indeed welcome it.

The FGN's strategy is to meet its external financing target of N850bn (US$2.8bn) in the 2020 budget from concessionary sources and cover any shortfall from the market. We note, however, that the external target for 2019 was pushed back into 2020, given the late passage of that year's budget.


A Eurobond issue is a far quicker operation than negotiating project loans from multilateral and bilateral partners.


It should also be a smooth operation, given the chase after yield by fixed-income investors. This chase can be seen in the popularity of the CBN's OMO bills with foreign portfolio investors.


Recent sovereign Eurobond issuers include Gabon and Ghana, which has a good growth and reform story to tell but a worse debt stock ratio than before debt cancellation. Ghana's was close to five times oversubscribed, and Gabon's three times. Benin is said to be coming to the market, presumably with a EUR-denominated issue.


The FGN has a decent story to tell, based upon a reasonable external balance sheet although without the comfort of an IMF programme in place. Its previous issuance dates from November 2018, when its distance from the Fund was not a stumbling block.


Eurobond sale proceeds feed directly into gross official reserves.


Nigeria has a huge infrastructural deficit, with annual investment needs upwards of US$10bn. The FGN's own capital spending, concessionary loans from its external partners and private-sector support together fall short of these needs. The transformation of the economy requires an overhaul of the infrastructure (and more besides).


Other than the dependence upon oil revenue, the principal weakness of the macro story is the debt service/FGN revenue ratio. Tax collection is rising, albeit from a very low base. Additionally, domestic borrowing rates have crashed, leaving a fair bit of headroom around the debt service projections for 2020 and beyond (Good Morning Nigeria, 05 February 2020).


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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.




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