Nigeria to restructures debt portfolio, puts $5.5bn Eurobonds on sale before year-end

Nigeria’s Debt Management Office (DMO) has indicated plans to restructure the nation’s debt portfolio through more foreign borrowings, just as it plans to sell as much as $5.5 billion of Eurobonds in the next three months.

Patience Oniha, director general of the DMO disclosed this in an interview with Bloomberg in Abuja Wednesday, saying that the monies raised through the sale of the Eurobonds would be used to fund capital projects in an effort to bring down cost of borrowing. The Eurobonds replace high interest bearing local-currency debts as source of funding. Yields on existing bonds rose.

Specifically, the government wants to raise $2.5 billion in October to help fund 2017’s 7.4 trillion-naira ($20.8 billion) budget, the biggest yet, while it will sell the remaining $3 billion before the end of the year to replace naira-denominated debt, she said.

The $5.5 billion Eurobond plan, if achieved, would bring the amount raised through Eurobond sales by Africa’s most-populous nation this year to more than $7 billion.

“The government’s advisers have told us the market is waiting. Work is already ongoing and we are just waiting for a resolution from the National Assembly to proceed,”Oniha said.

Nigeria’s overall foreign debt, which includes funds from partners and the Export-Import Bank of China, stood at $15.1 billion as of June 30, while domestic debt was N14.1 trillion, according to the National Bureau of Statistics.

Government specifically wants to increase the proportion of foreign borrowing to 40 percent of total debt stock from under 30 percent currently.

“That will reduce the government’s borrowing costs,” the DMO chief said, adding that there is an almost 10 percentage-point spread between domestic and foreign borrowing costs and the restructuring debt plan will help save government hundreds of million dollars in financing costs.

Citigroup Inc. and Standard Chartered Plc, which helped Nigeria sell bonds this year, will be retained as book runners for the $2.5 billion, and are in talks with the government to also lead the $3 billion sale, according to Oniha.

High domestic borrowing costs are also forcing the DMO to reduce the maturity of naira debt it plans to sell so that it doesn’t lock in unfavorable interest payments over a longer period.

“That will be reflected in our next-quarter calendar for bonds,” Oniha said, adding that government will instead push for more than 15-year tenure on dollar-denominated securities.

The yield on Nigeria’s $500 million of Eurobonds due July 2023 surged 15 basis points, the most since July 6, to 5.45 percent, while that on the February 2032 securities climbed 11 basis points to 6.85 percent by the close in London.

Nigeria’s Eurobonds yield 6.06 percent on average, compared with 15.98 percent for its naira debt, according to Bloomberg indexes.

The government is looking to plug a 2017 budget deficit that it forecast at 2.3 trillion naira, or 2.2 percent of GDP following a revenue shortfall caused by the decline of output and price of oil, its main export. About one-third of this year’s budget will be invested in new roads, rail, ports and power as part of a wider plan to help the economy recover from a 1.6 percent contraction last year, boost growth to 7 percent, and create 15 million jobs by 2020.

The Monetary Policy Committee on Sept. 26 left its key interest rate at a record high of 14 percent, where it’s been for more than a year, to fight inflation that’s almost double the target and maintain hard-won stability in exchange rates, Governor Godwin Emefiele said.

In the second quarter, the economy emerged from a 2016 slump, the deepest in more than a quarter of a century, with gross domestic product rising 0.6 percent from a year earlier.