Nigeria, yesterday, successfully raised a new $2.86 billion Eurobond but at a higher interest rate, which would put further pressure on debt service to revenue ratios. The country currently spends an average of N69 of every N100 revenue servicing debts. The higher interest rates paid on the new debts could take it above 70 percent unless the government is able to significantly boost revenue collection analysts said.
The successful transaction follows closely behind Nigeria’s successful engagement with the Fitch rating agency, and their subsequent decision to change the outlook on Nigeria’s sovereign rating from B+ (negative) to B+ (stable), based on improving macro-economic fundamentals.
However, this new borrowing takes Nigeria’s total external debt to $24.9 billion, six percent of the Gross Domestic Product of Africa’s largest oil producer, even as it provides cover for declining external reserves.
The Federal government sold benchmark-sized dollar bonds maturing in 2025, 2031 and 2049, which is equivalent to a 7-year, 12-year and 30-year bonds, at a price higher than its previous issuance. It sold January 2049 (the 30-year bonds) at 9.25 percent which compares with the 7.625 percent yield achieved on a 30-year bond a year ago.
The federal government also raised a 12-year bond at 8.75 percent compared with the 7.875 percent achieved on a similar tenor in February and sold the 7-year bond at 7.625 percent.
BusinessDay learnt that the total book size or bids on the bond was $9.25 billion representing an over subscription of three times despite the significant oil and wider macro market volatility Nigeria face and it allows the country achieve its 2018 external debt requirements for the year’s budget at a cost lower than many of its peers across Sub-Sahara Africa.
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The proceeds are expected to fund the country’s N9.1 trillion ($29.8 billion) budget, which has a deficit of N2.4 trillion and could even widen if ambitious revenue targets set out in the budget are not achieved.
The sale also provides a buffer for external reserves which have shed $6 billion since the end of June, after the Central bank raised dollar sales to defend the naira against fund outflows that have rocked other emerging market currencies.
External reserves stood at $41.6 billion as at November 13, according to CBN data while the naira weakened 0.15 percent to N364 per US dollar at the Investors and exporters window, Wednesday.
“Nigeria paid more to raise the Eurobond because of rising interest rates in the United States which has seen risk premiums repriced and made the global market conditions tighter than they were at the previous issuance,” said Wale Okunrinboye, head of research at Lagos-based pension fund, Sigma Pensions.
Other countries have largely avoided the Eurobond market in the second half of the year over fears that the cost of borrowing would be significantly higher as interest rates in US treasuries rise to their highest since the global financial crises. But cash strapped Nigeria has had to go into the market as revenues have consistently fallen below set targets in the last three years despite expanding expenditure.
The pricing was determined following a series of meetings with investors in London and conference calls with investors globally attended by the Nigerian delegation, which comprised Minister of Finance, Zainab Ahmed, the Minister of Budget and National Planning, Udoma Udo Udoma, Central Bank Governor, Godwin Emefiele, Director General of the Debt Management Office (DMO), Patience Oniha, and Director General of the Budget Office of the Federation, Ben Akabueze.
The Joint Lead Managers for the issuance were Citibank Global Markets Limited and Standard Chartered Bank and the financial advisors were FSDH Merchant Bank Limited.
Commenting following the successful pricing, Ahmed said: “Nigeria is investing strategically in critical capital projects to bridge our infrastructure deficit, provide a better operating environment for the private sector, and improve the standard of living of our citizens. The proceeds of this issuance will provide critical financing for projects in transportation, power, agriculture, housing, healthcare and education as well as the capital elements of our social investment programmes. Nigeria’s Economic Recovery and Growth plan is delivering results.”
Commenting on the pricing, the DMO Director General, Oniha said: “Nigeria’s continued ability to access the international markets to raise capital is a testament to investor’s confidence which has been supported by continuous engagement with them on various reform initiatives and outcomes. The issuance of the Eurobonds, which received the prior approval of the Executive and Legislative arms of government, will not only provide capital to finance various projects, but also contribute towards the achievement of the Debt Management Strategy. The ability to raise US$2.86 billion, which is the exact amount government needed in volatile and challenging market conditions has been described as a stellar outcome ”
While Nigeria’s low debt to GDP ratio suggests there is still room for more borrowing, it is its debt service as a percentage of revenue that has drawn widespread concerns.

In 2017, Nigeria’s debt service to revenue ratio ballooned to a record high of 69 percent which implies that for every naira earned, the country spends 69 kobo servicing debt, leaving just 31 kobo to spend on infrastructure or educate its rising population. The new $2.8 billion borrowing, will put further pressure on the already high debt service to revenue ratio.
In the second quarter of 2018, Nigeria spent a total of $202 million servicing debt raised from a mix of multilateral borrowers and private investors, according to DMO data.
That takes the amount spent servicing external debt this year to $427 million, having spent $225 million in the first quarter.
Forecasting with the half year trend, external debt service payments could hit $854 million by year-end, 84 percent higher than the $464 million spent in 2017.
The estimated external debt service costs for 2018 is 19 percent of the Federal Government’s oil earnings in 2017.
The second quarter debt service cost of $202 million represents a 248 percent increase from the comparable period of 2017 when $58 million was spent servicing foreign debt. The amount is $109 million shy of the $331 million spent servicing external debt in the whole of 2015.
Commercial bonds soaked up the largest chunk of the payment in Q2 2018, with 56.5 percent, while multilateral loans and bilateral loans accounted for 25 percent and 7.9 percent respectively. Agency fees and oil warrant accounted for 10.3 percent.
The Federal Government earned N2.7 trillion in oil and non-oil revenue in 2017, the lowest since 2011 when the government earned N2.56 trillion. That implies revenue to GDP ratio of 2.3 percent, the lowest in at least a decade.
Already, the Federal Government’s total non-debt recurrent expenditure of N2.8 trillion in 2017 was more than its total 2017 revenue.
Yields on the Eurobond maturing 2047 closed higher at 8.75 percent from a yield of 7.625 at issuance, showing a rise in risk perception for the country as oil prices dipped yesterday.
LOLADE AKINMURELE
