…Foreign reserves seen rising
…Experts say Trump’s win changed FG’s debt market plan
Analysts say the naira could see some stability as Africa’s most populous nation successfully tapped the international bond market after a two-year hiatus, recording a $9 billion oversubscription.
After a long wait all year, the federal government, on Monday, issued a dual-tranche Eurobond offering under its Global Medium Term Note Programme to finance the country’s 2024 fiscal deficit.
The issuance, which opened and closed on Monday, was oversubscribed in excess of $9 billion, with the federal government eventually taking just $2.2 billion across both bonds.
Read also: Nigeria issues new $500m Eurobond to plug 2024 budget deficit
The federal government sold $700 million worth of the 6.5 year Eurobond maturing in 2031 at a coupon rate of 9.625 percent and $1.5 billion of the 10-year tenure at 10.375 percent.
Thato Mosadi, Sub-Saharan Africa strategist at Jefferies Group, an investment bank, said that the potential issuance was well-telegraphed and supportive for demand dynamics.
“A deal price of 9.625 percent for the 6.5-year and 10.375 percent for the 10-year bond is above the government’s preference for single-digit yields. However, we think the option to tap into the international capital market at an opportune time should be credit positive for Nigeria’s immediate external buffers,” she said.
Mosadi mentioned that the size of the deal is aligned with the Senate’s approval for funding.
Impact on naira
Opeyemi Babalola, analyst at Commercio Partners, an investment bank, said that the issuance will see the naira appreciate in the short term but that might only be sustainable till January.
However, Babalola said that the yield on the 10-year tenure might be too high for that duration, citing Ghana’s default on its issuance as a result of similar yield trend
“We should not be locking a 10-year bond at a 10 percent coupon. It shows how desperate we are to get dollars. Ghana’s problem started when they issued bonds at very high yields,” he said.
The naira has plunged by more than 70 percent since Nigeria removed capital controls mid last year.
According to the data from the FMDQ, the naira was quoted at N1,672.69 Monday at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
Olaolu Boboye, fixed-income and lead economist at CardinalStone Securities, had said before the Eurobond result late Monday that the naira was entering an era where there seemed to be a lot of upside for it, noting that it would not necessarily mean the currency would appreciate.
“The government looking to issue a Eurobond of $1.7 billion could easily take the FX reserves close to $42 billion and that will be the highest we’ve had since Covid and it’s pretty much impressive,” he said.
Boboye said, however, the disposition of the Central Bank of Nigeria (CBN) does not show it wants to intervene much in the FX market, “ but what this will do is to create an adequate liquidity buffer for the CBN .”
He said the new FX trading system could create a leeway for the CBN to actively participate in that window. “That could create some stability for the naira.”
Similarly, Joshua Joseph, fixed-income analyst CSL Stockbrokers, said that the new issuance will increase the external reserves.
“We expect that the issuance will support the appreciation of the naira in the short term,” Joshua said.
Many analysts had initially projected that the federal government would enter the foreign debt market next year. However, Donald Trump’s win is said to have changed plans.
Read also: FG plans $1.7bn Eurobonds to support economic reforms Wale Edun
“The federal government issuing the eurobonds this year might be because Trump’s win could shift dynamics in the market next year. The market had initially priced a 100 basis rate cut next year, but now the rate cut undertone is not as strong as it was,” Boboye said.
The last time Africa’s most populous nation tapped the international debt market was in March 2022 when it raised $1.25 billion at a rate of 8.375 percent through a seven-year Eurobond.
The bonds are expected to settle on December 9, 2024.The proceeds from the Eurobond will be used to fund critical infrastructure projects and support economic growth.
