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Debt Securities

Nigeria’s Eurobond yield hit 12.8% as investors flee emerging markets

Nigeria’s 2049 Eurobond Yields traded at a yield of 12.81% as prices fell to $72.94. The coupon rate for this loan about 9.2%.

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The State of the Nigerian Mutual Funds Industry, Nigeria's Eurobond

Nigeria’s Eurobond yields spiked to as high at 12% last week as investors fled emerging market securities in the wake of Covid-19 pandemic and the crash in oil prices.  

Higher bond yields: Nigeria’s 2049 Eurobond Yields traded at a yield of 12.81% as prices fell to $72.94. The coupon rate for this loan about 9.2%. The shorter ended 2021, 28th January bond yields sold for $97.29 with a yield of 10.09%. Bond yields are inversely correlated to their underlying prices. The lower the price of a bond the higher the yields. A falling bond price is often associated with higher risk consideration.

Nigeria's Eurobond

Nigeria’s Eurobond Rates

Country Risk: As Oil prices continue to fall, foreign portfolio investors are worried about the government’s ability to meet its credit obligations without seeking refinancing of the bonds. Nigeria currently has over $29 billion in external loans with the Eurobond component stated at $10.8 billion as of September 2019. The country’s revenue situation could affect its ability to repay its bond obligation forcing a sell-off and increasing bond yields.

Downgrades: Earlier in the month, one of the global rating firms, Fitch downgraded Nigeria’s credit ratings. This rating agency explained the downgrade was mostly due to the decrease in the country’s external reserve from $45.1 billion as of June 30, 2019, to about $38 billion as of January 31, 2020. The decline in the external reserve has persisted as it now $36.18 billion. It is also expected to fall further with the crash in oil prices below $30 per barrel.

In December 2019, Fitch Ratings revised the outlook on Nigeria’s long term foreign-currency issuer default rating (IDR) to ‘Negative’ from ‘Stable’, but affirmed the country’s sovereign credit rating at B+. However, Fitch’s Middle East and Africa sovereign analyst, Jan Friederich, hinted that the B+ rating could be revised downwards to negative.

Nigeria's Eurobond

FGN Bond Yields

Eurobond Yields vs FGN Bonds Vs Corporate Bonds: Analysts also noted that Nigeria’s Eurobonds now traded at almost the same yields as FGN Bonds while some Corporate Bonds yields even had lower yields than Eurobonds.

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Nigeria's Eurobond

Eurobond Yields

This is somewhat of an anomaly as investors often price local bond securities at a higher yield when compared to foreign currency denominated bonds. This perhaps shows just how spooked foreign portfolio investors are about Nigeria’s revenue situation.

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Buying Opportunity? The latest devaluation of the naira may have also presented a buying opportunity for Nigerian Eurobonds. With yields as high as 12%, investors will be in line for significant upside if prices rally later in the year. While the risks still remain high, a bond rally could ensue once the Covid-19 virus is contained and oil prices stabilize. This is not taking into consideration another possible round of devaluation later in the year.

Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

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    Business

    DMO reveals what infrastructure Sukuk Fund is financing

    The Debt Management Office revealed that Sukuk funding is currently rehabilitating the Outer Marina Road in Lagos.

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    The Debt Management Office revealed that Sukuk funding is currently rehabilitating the Outer Marina Road which is a major road connecting Lagos Island to Victoria Island, Falomo and Ikoyi.

    The DMO disclosed this in a statement on Wednesday evening.

    “While the Outer Marina Road is a major artery on its own, It will also be instrumental to easing the traffic in Lagos during the repair of Falomo Bridge. Thanks to the SUKUK, we are able to rebuild Nigeria one infrastructure at a time,” it said.

    READ: Investors scramble for DMO sovereign sukuk as it records 446% oversubscription

    READ: Abigail Johnson is the world’s richest in finance, manages a $5 trillion investment company

    What you should know 

    The Debt Management Office (DMO) announced last month that it listed its third sovereign Sukuk, N162.557bn 7-year 11.200% AL Ijarah Sovereign Sukuk due 2027, on the Nigerian Stock Exchange and the FMDQ Securities Exchange.

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    Debt Securities

    FG moves to issue Eurobonds, to select advisers through open bid

    The amount to be raised is expected to be within the external borrowing plans for 2021.

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    Debt Management Office resumes FGN savings bond offer on August 10, Eurobonds, Patience Oniha, DMO, External debt servicing

    The Federal Government has concluded plans to issue Eurobonds for 2021 and is going to pick advisers to the transaction through an open bid process.

    The amount to be raised is expected to be within the external borrowing plans for 2021. The Federal Government in 2021 plans to raise $6.14 billion (N2.34 trillion) from foreign sources.

    This disclosure was made by the Director-General of the Debt Management Office (DMO), Patience Oniha, during a chat with Reuters on Wednesday, April 7, 2021.

    The Federal Government, who had earlier planned a Eurobond issue early last year after its sixth sale in 2018 where it raised $2.86 billion, deferred such plans due to the disruptions caused by the outbreak of the coronavirus pandemic.

    The DMO boss at an investors conference with the Federal Government put together by Citibank, last year, said that the Federal Government had no plans to source debt from Eurobond in 2020 as it is going to shift its focus to domestic borrowing and sourcing from concessionary sources.

    Earlier this year, Nigeria reduced its external borrowings in a new debt strategy after it redeemed its 6.75% $500 million Eurobond in January with Oniha saying that the DMO was monitoring international markets for new issues by frontier countries.

    What you should know

    • Ghana had some time last week raised $3 billion from Eurobonds, a year after the outbreak of the coronavirus pandemic, which disrupted economic activities globally.
    • This will be a huge boost for Nigeria especially at a time the Federal Government is still struggling to get approval for the $1.5 billion loan from the World Bank due to issues on currency reforms.
    • The Institute of International Finance had said it expected African governments to return to capital markets this year to sell bonds as investors embrace more risk.

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