Nigeria will pay a higher interest on its recent Eurobond as its yields are the second highest among seven largest Africa’s largest economy.
The country’s bonds with maturities of 30 years were priced at 9.25 percent, this compares with Ivory Coast, (6.60 percent), Ghana ;( 8.60 percent), South Africa; (6.30 percent), but lower than Angola’s price of 9.38 percent,
The higher pricing for Nigeria’s bonds is due to the emerging market risk off emanating from the continuous rate hike by the United States’ (U.S) Federal Reserve (Feds) that has resulted in higher U.S treasury yields and the on-going trade war between China and the U.S that is taking its toll on developing market economies.
On the home front, the record drop in the price of crude oil since October, falling direct investment, inflationary pressures, and the risks associated with the forthcoming presidential elections have heightens investors jitters.
Nigeria issued $2.86 billion in Eurobonds on last week Wednesday to plug its 2018 budget deficit. The bonds with maturities of 7, 12 and 30 years were priced at 7.625 percent, 8.75 percent and 9.25 percent, respectively. The issue was 3 times oversubscribed, as investors continue to have confidence in the country’s fundamentals.
“Specifically, when compared to the February 2018 Eurobond issuance where the spread between Nigeria’s Eurobond rates and comparable US treasury was 427 bps and 456bps for the 12year and 20 year respectively, the recent issuance which portends a 563bps and 589bps spread for the Nigeria’s 12 year and 30 year appears expensive,” said analysts at ARM Securities.
Nigeria’s inflation for the month of September is 11.23 percent, which is above the Central Bank of Nigeria’s (CBN) target of 6 percent and 9 percent.
Total outflows from July – October 2018 stood at $20.6 billion (monthly average of $4 billion) with offshore demand at the IEW accounting for c.31 percent of the total outflow, while total inflows stood at $14.8 billion (monthly average of $3.8 billion), according to data from ARM Research.
“Consequently, the CBN depleted the reserve by $5.8 billion in a bid to keep the naira stable,” said analysts at ARM Research.
Analysts have expressed fears over Nigeria’s rising debt profile which has put pressure on government revenues due to associated high debt service cost as latest National Bureau of Statistics (NBS) data show that over 90 percent of government revenues was channelled toward debt servicing between January and June last year.
The country’s total public debt is at N22.30 trillion ($73.20 billion) using an exchange rate of $306/N, this compares with N21.7trn as at December 2016 and N17.3tn as at December 2015.
Federal Government’s debt serving cost has been eating deep into revenue, at the detriment of a fragile economy.
In 2011, debt servicing was taking 20 percent of Federal Government revenue. By 2017 it has risen to 61.59 percent.
Nigeria’s FG funds up to 60 percent of its annual budget from the proceeds of oil sales.
If the federal government’s share of oil revenue at N1.12 trillion is compared with the associated cost of servicing debt of N1.64 trillion, clearly, the federal government oil revenue is not enough to pay interest on Nigeria’s expanding debt.
BALA AUGIE
