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.
This marks the country’s first Eurobond issuance since March 2022. The bonds will be issued in U.S. dollars, with semi-annual coupons, and are structured in 144A/Reg S format, making them accessible to both U.S. and international investors.
Bond settlement fixed for December 9, 2024
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.
Nigeria’s credit ratings remain under pressure, with a Caa1 (positive) rating from Moody’s and a B- (stable) rating from both S&P Global Ratings and Fitch Ratings. The issuance is seen as a critical step in managing the country’s fiscal challenges and addressing the growing burden of foreign debt.
What you should know
- The government has also been grappling with the rising costs of public spending, which have strained its finances.
- In the first six months of 2024, Nigeria recorded N4.56 trillion deficit, which is 3.72% of its Gross Domestic Product (GDP).
- Last month, the government announced plans to raise $2.2 billion from foreign investors to plug this budget shortfall.
- This amount was to include $1.7 billion Eurobonds and $500 million Islamic Sukuk bonds. It appears the Federal Government plans to get about $1.2 billion from its 10-year Eurobond.
- This issuance comes at a time when several African nations, previously priced out of international markets following the sharp rise in global interest rates in 2022, are returning to the capital markets.
- Countries such as Ivory Coast, South Africa, Benin, Senegal, Kenya, and Cameroon have recently completed successful debt issuances.
- Nigeria’s return to the market reflects growing confidence in the country’s fiscal reforms and its strategy to diversify funding sources.
- Nigeria, Africa’s largest oil producer, has faced mounting fiscal pressures in recent years, exacerbated by a global energy market downturn and domestic production disruptions.
In response, the country raised $900 million in September through its first-ever domestic sale of dollar-denominated bonds, aimed at supporting the 2023 budget.
Despite these efforts, the government has continued to struggle with balancing public spending against revenue.
The Minister of Finance, Wale Edun, earlier said that the country would not issue a Eurobond, citing concerns that such a move could expose Nigeria’s volatile dollar securities to higher debt costs.
However, with significant revenue shortfalls largely driven by low crude oil output, the need for a Eurobond is becoming increasingly critical to raise capital and address budget deficits.