FBNQuest endorses Nigeria’s $2.5 billion Eurobond

Urges hasty approval by NASS

Stella Mbah | Thursday, 05 October 2017 4:28pm | economy

source: eurobond

FBNquest research group on Thursday declared its support for the proposed $2.5 billion Eurobond which the government plans to issue by mid-November.

This final round of external borrowing for the year would cover the greater part of the government’s projected external financing of N1.07trn ($3.5bn) in the 2017 budget the group said in its daily publication “Good morning Nigeria”.

“The FGN is well placed to tap a receptive market, not least because its external debt at end-June amounted to just 3.9% of estimated 2017 GDP. We fully endorse this initiative.”

The government is planning to return to the Eurobond market before the end of the year in order to borrow at half of what it pays locally. The government says that it would use the money to fund capital projects across the country.

According to analysts at FBNQuest, the country’s debt office has a medium-term target of 60/40 for the blend of its domestic and external obligations, however, the ratio stood at 72/28 at end-June. If we add the Eurobond issuance plus the FGN’s proposal to convert maturing NTBs into short-term USD instruments up to a ceiling of US$3bn, we arrive at a ratio of about 65/35.

The research group also cited the substantial interest rate differential in favor of external borrowing as a core motivation for its position adding that it has not overlooked the normalization of US monetary policy in the months ahead.

They also called on the government to take immediate advantage of the current popularity of the dollar denominated Eurobond issues by emerging market sovereigns as such windows of opportunity could close at any time.

“In early September Tajikistan issued for the first time, raising US$500m for ten-year paper at 7.125 percent.” The issue pushes its external public debt/GDP ratio up to 50 percent, and was rated B-.by S&P (one notch below Nigeria).”

“Earlier this week Jordan came to the market for the second time this year, raising US$1bn for 30-year paper at 7.375 percent. Its public debt ratio stands at around 90 percent of GDP. Demand is also strong for higher quality debt. Saudi Arabia has raised US$12.5bn, with the 30-year tranche priced at just 180bps over USTs.”

“Yet on the grounds that the window of opportunity can close suddenly, we urge the FGN to secure the necessary approvals and push ahead with haste.”