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FGN External Debt Mostly Concessional

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Monday, September 26, 2016 10.46 AM / FBNQuest Research

FGN external debt at end-June amounted to US$11.26bn, equivalent to 3.4% of 2015 GDP. The total has increased by US$540m over six months, and the outstandings to the World Bank Group by US$560m.

The group remains by far the largest external creditor, and multilateral creditors account for 71.0% of all borrowings. When we add the bilateral creditors, led by Exim Bank of China, the burden is 86.7% concessional.

The only debt contracted at market rates are the three sovereign Eurobonds. The very low total debt servicing costs compensate for the impact of the devaluation and ensuing naira weakness.

The 2016 budget projects N900bn in external financing, which was US$4.5bn when it was passed. We are not party to any changes the FGN may have made to its budget as a result of the devaluation or to the progress of its talks with the World Bank and the African Development Bank (AfDB) on deficit financing.

There was talk of raising US$3.5bn from the two multilaterals and US$1.0bn from the sale of Eurobonds. Separately, China was to provide US$6bn over three years for either the infrastructure or industrialisation, depending on the source of the report.

FGN external debt by lender group, Jun 2016 (% shares

We noted yesterday how market conditions favour Eurobond issuance in emerging and frontier markets. This is clear from launches with a good credit story (such as Argentina) and those that are less attractive (like Ghana). The story for the forthcoming FGN issue does not belong to the first group. 

The Jul ’23 Eurobond currently yields 6.4%, and the naira-denominated Mar ’24 FGN bond 14.7%. Offshore investors can see the large differential, which was a compelling argument for the NGN paper when the exchange rate was table and repatriation a formality.

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