…as oil outlook lifts sentiments
A benign outlook for oil prices, days after OPEC members agree to freeze a significant chunk of output may see investors price Nigeria’s proposed $1 Eurobond at near 7 percent.
This is according to the median estimate of ten fixed income research analysts, polled in a TBN.com survey this week.
“The positive outlook for oil prices, especially with the recent agreement on oil export cuts by the OPEC will spur appetite for the proposed bond,” said Tiffany Odugwe, a research analyst at Lagos-based investment firm, Cardinal Stone Partners Ltd.
Brent oil traded higher at $52.5 per barrel Wednesday, the highest since February, rising by less than one percent from $52.4 Tuesday.
Militant attacks on oil installations had reined in the parade of Africa’s second largest oil producer, barricading it from the benefits of a modest rise in oil prices.
“But rigorous efforts by government officials to quell the unrest in Nigeria’s oil-rich Niger-delta region”, where the militants have struck repeatedly, Odugwe says “will see investors demand less of a risk premium when pricing the proposed Eurobond.”
Yields on the country’s outstanding Eurobonds due in 2018, 2021 and 2023 are trading at record lows of 4.42 percent, 6.49 percent and 6.7 percent respectively.
That compares with average yields on emerging-market sovereign Eurobonds of 16 percent, according to data deduced form the JP Morgan emerging market index.
“Nigeria has very low levels of external debt, and has had no problem servicing its external debt in recent years, hence the low yield on its Eurobonds,” said Charles Robertson, chief economist at investment firm, Renaissance Capital Ltd, by e-mail.
Sources familiar with Nigeria’s proposed $1billion Eurobond sale told BusinessDay that the Federal Government would select the three advisers to manage the process this week, after calling for bids to be submitted in September.
Analysts say an inflow of $1 billion would water the country’s dehydrated foreign exchange market and help government go on with record spending plans, as the economy contracts for the first time since 1991.
The three advisers comprise two international banks to serve as lead managers and one local bank in the capacity of a financial adviser.
Nigeria has been staunch in servicing previous Eurobond issuances, which amount to $1.5 billion, BusinessDay findings show.
The country paid a total of $91.2 million to bondholders in 2015, servicing its three outstanding Eurobonds. Each gulped $25.6 million, $33.7 million and $31.8 million respectively in bi-annual payments made in the first and fourth quarters of 2015, according to the country’s Debt Management Office (DMO).
Despite plunging revenues, brought on by low oil prices and production, the country coughed up $45.6 million in interest payments to bondholders this year already, on all three bonds, with each accounting for $12.8 million, $16.8 million and $15.9 million.
“Nigeria has very low levels of external debt, and has had no problem servicing its external debt in recent years, hence the low yield on its Eurobonds,” said Charles Robertson, chief economist at investment firm, Renaissance Capital Ltd, by e-mail.
Sources familiar with Nigeria’s proposed $1billion Eurobond sale told BusinessDay that the Federal Government would select the three advisers to manage the process this week, after calling for bids to be submitted in September.
Analysts say an inflow of $1 billion would water the country’s dehydrated foreign exchange market and help government go on with record spending plans, as the economy contracts for the first time since 1991.
The three advisers comprise two international banks to serve as lead managers and one local bank in the capacity of a financial adviser.
Nigeria has been staunch in servicing previous Eurobond issuances, which amount to $1.5 billion, BusinessDay findings show.
The country paid a total of $91.2 million to bondholders in 2015, servicing its three outstanding Eurobonds. Each gulped $25.6 million, $33.7 million and $31.8 million respectively in bi-annual payments made in the first and fourth quarters of 2015, according to the country’s Debt Management Office (DMO).
Despite plunging revenues, brought on by low oil prices and production, the country coughed up $45.6 million in interest payments to bondholders this year already, on all three bonds, with each accounting for $12.8 million, $16.8 million and $15.9 million.
“Nigeria’s zero default on debt service conveys a positive signal to investors, as it heads to the international debt market for the first time since 2013,” Odugwe added.
The median debt servicing cost in sub-Saharan Africa tumbled to a low of 4.8 percent in 2011, from 14.4 percent of government revenues in 2001, according to World Bank data.
Between 2000 and 2011, the median ratio of government debt to Gross Domestic Product (GDP) of 18 major sub-Saharan countries fell from 80 percent to 30 percent, according to data from Fitch Ratings. This was propelled by a wave of debt forgiveness by the International Monetary Fund (IMF) and World Bank.
However, a fresh wave of borrowing this year, ignited by falling commodity prices, has pushed average debt to GDP ratios back above 50 percent for the first time since 2005.
This figure is forecast to hit 51.4 percent this year and 53.3 percent in 2017 in the 18 countries rated by Fitch.
Despite rising to 16.8 percent in 2016 from 13.6 percent in 2015 Nigeria’s debt to GDP remains the lowest in sub-Saharan Africa.
The country’s debt stock, as published by the DMO, showed that external and domestic obligations rose 29 percent to N16.3 trillion in June 2016, from N12.6 trillion at the end of 2015.
Debt-to-GDP ratios are far higher in the developed economies, at 91 percent in the Eurozone, 104 percent in the United States and 229 percent in Japan, as at 2015.
In the first half of 2016, there was a decline in sovereign bond issuances by 50.58 percent (year-on-year), as only South Africa ($1.25 billion) and Mozambique ($726.5 million) raised international bonds (Eurobonds), as against four issuances totalling $4 billion in the first six months of 2015.
Only Ghana has joined the pack since then, selling $750 million worth of debt on September 8. The Eurobond was more than four times oversubscribed, rendering an optimistic outlook for Nigeria’s outing.
Ghana’s Finance Minister, Seth Terkper, said last week that Eurobonds are now part of the West African country’s borrowing mix.
Nigeria’s $1 billion Eurobond is the first tranche of a $4.5 billion debt programme to run through 2018.
The country’s credit rating was lowered to ‘B’ by global rating agency, Standard & Poor’s (S&P) in its last ratings published Sept. 12, citing weak growth dynamics.