The Federal Government (through the Debt Management Office DMO) may be considering a $2.5 billion Eurobond in the first quarter of this year. Director-General of the DMO, Patience Oniha disclosed this in an interview with Bloomberg. This is dependent on market conditions, and may be in tranches (several parts). The bonds form part of a $5.5 billion debt programme that began last year, and were massively oversubcribed.
Hello JP Morgan
Oniha also revealed that government has commenced discussions about its re-admittance into the JP Morgan bond index. The bank had removed Nigeria from the index in September 2015, due to difficulties with foreign exchange liquidity.
What has changed ?
Foreign exchange liquidity has since increased due to a rebound in both crude oil prices an domestic production volumes. Crude oil prices have moved from less than $40 a barrel, to almost $70 a barrel.
Why the Eurobond raise now ?
Eurobonds are bond raised in a currency other than that of the issuing nation, usually dollars. Nigeria has embarked on an increase in foreign borrowing in order to take advantage of lower interest rates, and reduce the crowing out effect on corporate issuers.
Global markets have been largely bullish, and the United States is considering raising interest rates. DOing so would make a Nigerian bond less attractive. The agency could also be eager to embark on the bond exercise before political campaigns begin, which would leave most foreign investors watching cautiously.
What will the money be used for ?
Proceeds from the bond exercise will be used to lug a budget deficit. A budget deficit is when a government spends more than it earns. The funds raised are key in order to boost the weak economic recovery achieved in 2017.
The DMO was established on 4th October, 2000 to centrally coordinate the management of Nigeria’s debt, which was hitherto being done by a myriad of establishments in an uncoordinated fashion