The Debt Management Office (DMO) reported on Thursday night that Nigeria’s dual tranche Eurobond offering of $2.5 billion was oversubscribed by about 6x. According to the DMO, a peak order book of over $11.5 billion was recorded as investors poured into Nigeria’s first bond offering for the year.
As things stand, Nigeria could hit an external reserve level of $50 billion by the end of this year, on the back of its various Eurobond offerings.
Highlights of the offering;
- The bond notes included a $1.25 billion 12-year series and a $1.25 billion 20-year series.
- The 12-year series will bear interest at a rate of 7.143%, while the 20-year series will bear interest at a rate of 7.696%
- Both bond offering will be repayable with a bullet repayment of the principal on maturity.
How do I get in on this
- The bond offering is expected to close on February 23, 2018, subject to its underlying conditions.
- You can apply through your banker or stockbroker, who will make placement on your behalf.
- If you missed out on the primary offer, you can buy on the secondary market also through your broker or designated ban.
Is this a good investment
- It is not every time you are offered with an opportunity to buy a Eurobond from a country that offers an interest rate of 7% plus.
- Foreign investors know rates like this are hard to come by, which is why it is oversubscribed
- Considering that the bond interest will be paid in dollars and principal also in dollars, this is a good investment hedge against inflation and local currency volatility. No point keeping those dollars in the bank when you can earn a decent return on them.
- Also important to note than Nigeria’s economy is improving and if this level is sustained or even improved then the value of the bond could even be higher months from now (we explained this below)
But are there risks
- It’s a loan backed by the full faith and credit of the government so you will expect that there are no risks. However, no condition is permanent.
- It’s an election year next year so, if something goes wrong, God Forbid, and Nigeria cant repay the loan then you might lose a part of your investment.
- We could also be exposed to sever economic headwinds that could negatively impact on the country’s ability to pay its debt. We saw this happen with Venezuela recently and Argentina some years back.
- However, we do not think Nigeria’s situation is that bad, besides you can sell your bond on the secondary market before the end of the tenure. This brings us to another risk.
How Bond value works
- Bonds are assets and have prices. For example, assuming at the time you bought the bond it was $100 per issue with an interest rate of 7%. You now want to sell and the market is pricing it for $90. It means you lose $10 on every unit of bond you sell. This often occurs when yields are high (maybe because the market thinks Nigeria is risky and everyone wants to sell).
- Of course, we have a reverse scenario where you can sell for $110. Which means there is increased demand for our bond offering.