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FG to sell $5.5bn Eurobonds to Fund Capital Projects

From Udo Onyeka, Lagos:


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The Federal Government is planning to sell as much as $5.5billion of Eurobonds in the next three months to finance capital projects and replace naira-denominated debt, the Debt Management Office has said. Yields on existing bonds rose to the highest in two months. The new offer will bring the amount raised through Eurobond sales by the nation this year to more than $7bn.

The President Muhammadu Buhari administration, through the DMO, is planning to restructure the country’s debt portfolio to almost double the portion of foreign borrowing in a bid to reduce financing costs. The Director-General, DMO, Patience Oniha, said at the weekend in Abuja that the government was planning to raise $2.5bn in October to help fund 2017’s N7.4tn.

She said the government would sell the remaining $3bn before the end of the year to replace naira-denominated debt. She noted that 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,” she added.

The yield on Nigeria’s $500m of Eurobonds due July 2023 rose four basis points by 1:26pm in London, extending Wednesday’s 15 basis-point climb, to 5.49 per cent, the highest since August 21.  That on the nation’s dollar securities due in 2032 increased six basis points to 6.91 per cent, the highest since July 18.

Citigroup and Standard Chartered Plc, which helped the Federal Government to sell bonds this year, will be retained as book runners for the $2.5bn, and are in talks with the government to also lead the $3bn sale, according to the DMO director-general.

The country’s overall foreign debt, which includes funds from partners and the Export-Import Bank of China, stood at $15.1bn as of June 30, while domestic debt was N14.1tn, the National Bureau of Statistics said on September 19. According to Oniha, the government wants to increase the proportion of foreign borrowing to 40 per cent of total debt stock from under 30 per cent currently.

“That will reduce the government’s borrowing costs,” she said. There was an almost 10 percentage-point spread between domestic and foreign borrowing costs and the restructuring debt plan, which she said, would help save the government hundreds of million dollars in financing costs.

Nigeria’s Eurobonds yield an average six per cent, compared with about 16 per cent for its naira debt, according to Bloomberg indexes. The Monetary Policy Committee had on September 26 left the key interest rate at a record high of 14 per cent, where it has been for more than a year.

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