FG Selects 8 Banks For Sale Of $1bn Eurobond

According to BusinessDay, the Federal Government of Nigeria have shortlisted eight banks of an undisclosed number that submitted bids in September as touching the Country’s hunt for economic advisers for the proposed sale of $1 billion worth of Eurobonds.

Three of the selected eight would be handpicked next week to handle the whole programme, sources familiar with the matter said.
Securing $1 billion in FX inflow would boost dollar liquidity in Nigeria’s ailing foreign exchange market and would aid plans of a record spend by government on capital projects. “I have always thought rather than sell down assets to unfreeze FX inflow, Nigeria should fast-track its borrowing plans,” said Tiffany Odugwe, a research analyst at Lagos based investment bank, Cardinal Stone Partners Ltd, by phone.

Nigeria’s Debt Management Office (DMO) had disclosed plans in August to appoint two international banks as joint lead managers and a local lender as financial advisers for the whole programme.

The $1 billion Eurobond, double the size of what Nigeria has floated in five years, is the first tranche of a $4.5 billion Nigeria Global Medium-Term Notes Issuance Programme that runs through 2018.

Hard hit by plunging commodity prices, African countries are turning to the Eurobond market for the first time since 2013.

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. “Nigeria would probably have to offer a yield of around 7.25 percent to 7.35 percent on a $1 billion 10-year bond, and closer to 7.5 percent on a bigger deal,” analysts say.

Yields on Nigeria’s 2023 bonds have cooled from an average of 9 percent in January, to 6 percent in September, a gain of 33 percent for bondholders in the period. That compares with average profits on emerging-market sovereign Eurobonds of 16 percent, according to Bloomberg data.
Angola’s bonds due in November 2025 yield 9.56 percent, while those of Gabon maturing in June 2025 have yields of 8.25 percent.

In contrast, Nigeria’s local-currency securities, meanwhile, have lost 7.9 percent this year, the worst performers among peers.
Demand for the nation’s U.S. currency-denominated securities drove yields to the lowest in 15 months, handing investors returns above the emerging market average this year.

Dollar bonds have been helped by an era of low yields in developed nations from the U.S. to Japan, where interest rates are at record lows.
“The pricing is what will determine the overall attractiveness of this issue – whether or not it will be oversubscribed,” said Tosin Ojo, head of research at Cardinal Stone Partners, in an interview with BusinessDay. “Investors always seek to maximise returns and our current risk perception has put them in a position to demand for higher returns,” Ojo added.

The fundamental concerns and increased prospect of currency weakness have either shelved or delayed the Eurobond issuances by most African countries. Nigeria has sold dollar bonds twice, first was in 2011 and the last time was mid-July 2013, when it raised $1 billion of five- and 10-year debt.
“The conditions relative to 2011 and 2013 are very different now.

As you may already know, our country risk premium will certainly be higher, given the steep decline in oil price, our mono-source of FX earnings,” Ojo concluded. Analysts at Lagos based Vetiva Capital say there should still be enough demand to ensure Nigeria’s deal goes smoothly.

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