Nigeria has raised $2.2 billion through its latest Eurobond auction, marking a pivotal moment in the country’s ongoing efforts to address its growing fiscal deficit.
This auction, which saw the issuance of two bonds with varying tenors, follows the government’s return to the international capital markets for the first time since March 2022.
The funds raised will primarily be used to support Nigeria’s 2024 budget, which is under strain due to persistent revenue shortfalls and mounting public spending.
According to sources, who spoke to Nairametrics on Monday, while Nigeria recorded a total subscription of over $9 billion, only $2.2 billion was allotted.
The allotments are $700 million for the 6.5-year bond priced at 9.625% and a larger $1.5 billion for the 10-year bond priced at 10.375%.
The bonds were issued under the Regulation S/144A structure, making them available to both U.S. and international investors.
This oversubscription reflects continued investor interest in Nigerian debt, though the yields have raised concerns about the country’s financial stability.
Nigeria’s Eurobonds near junk status
While the oversubscription of the Eurobond issuance is a sign of investor confidence, the pricing of the bonds—particularly the 10-year bond at 10.375%—has drawn attention. These yields are notably high, with some analysts indicating that the country’s debt may be nearing ‘junk status.’ With the 10-year bond priced significantly higher than typical investment-grade bonds, investors are demanding a higher risk premium due to concerns over Nigeria’s economic outlook and creditworthiness.
Several investors expressed surprise at the timing of the bond issuance, especially given the high rates. The yields are considerably higher compared to previous issuances, suggesting increasing concerns about Nigeria’s ability to manage its debt burden.
Nigeria attracted investors from the UK, North America, others
In a statement on Monday, the Debt Management Office (DMO) announced the successful issuance of Eurobonds.
The DMO noted that the bonds attracted a wide range of investors from multiple jurisdictions including the United Kingdom, North America, Europe, Asia, Middle East and participation from Nigerian investors.
The statement read: “The Federal Republic of Nigeria (the “Republic”) successfully priced US$2.2 billion in Eurobonds (the “Notes”) maturing in 2031 (6.5-year) and 2034 (10- year) in the international capital markets on 2 December 2024, with US$700 million and US$1.5 billion placed in the 2031 and 2034 maturities, respectively. The 6.5-year and the 10- year. The Notes were priced at a Coupon and Re-offer Yield of 9.625 per cent and 10.375 per cent, respectively.
“Nigeria is pleased to have attracted a wide range of investors from multiple jurisdictions including the United Kingdom, North America, Europe, Asia, Middle East and participation from Nigerian investors, which it views as an expression of continued investor confidence in the country’s sound macro-economic policy framework and prudent fiscal and monetary management.
“The transaction attracted a peak orderbook of more than US$9.0 billion. This underscores the strong support for the transaction across geography and investor class. With respect to investor class, demand came from a combination of Fund Managers, Insurance and Pension Funds, Hedge Funds, Banks and other Financial Institutions.”
In the statement, Nigeria’s Finance Minister, Mr. Olawale Edun, emphasized the confidence in President Bola Tinubu’s administration’s efforts to stabilize the Nigerian economy and promote sustainable growth. He noted the strong investor interest in the Eurobonds as a sign of increasing confidence in Nigeria’s economic direction.
Also, Central Bank of Nigeria’s Governor, Olayemi Cardoso, highlighted the positive outcome as a reflection of investor confidence and Nigeria’s improved liquidity and market access.
DMO Director-General, Patience Oniha, celebrated the landmark achievement, citing strong investor demand (4.18x the offer size) and the competitive pricing of the new 6.5-year and 10-year Notes, which were set at 9.625% and 10.375%, respectively. The DMO also reaffirmed its commitment to transparency and continued engagement with investors.
What you should know
- Nairametrics earlier reported that Nigeria is returning to the international capital markets for the first time in over two years with a significant Eurobond offering, aimed at funding the country’s 2024 budget deficit.
- The government is issuing $500 million in 6.5-year bonds, alongside a benchmark-size offering of 10-year bonds, with yields expected in the 10.125% area for the shorter-dated securities and 10.625% for the longer maturities.
- The bonds will be listed on the London Stock Exchange’s Main Market, and the transaction is set to settle on December 9, 2024. Denominations will start at $200,000, with multiples of $1,000 thereafter.
- The proceeds from this issuance will be used to support the Nigerian government’s efforts to bridge the fiscal deficit, which has been widening due to a combination of disruptions in crude oil production, low tax revenue, and insufficient economic diversification.
- The Eurobond sale is managed by a consortium of international and domestic financial institutions, including Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Standard Chartered Plc, with Chapel Hill Denham Advisory Limited acting as the Nigerian bookrunner.
