FG Plans $2.5bn Eurobond Sale in Q1, Seeks Return to JPMorgan Index

Nigeria may sell $2.5 billion of Eurobonds in the first quarter to refinance its domestic debt and wants to start talks with JPMorgan Chase & Co. about being reinstated on its local-currency emerging-market bond index, the Debt Management Office (DMO) has revealed.

The issuance would complete a dollar-debt programme that started with selling $3 billion of Eurobonds in November, the Director General of the DMO Patience Oniha told Bloomberg.

The yield on dollar bonds due November 2027 have fallen about 60 basis points since they were issued late last year to 5.92 per cent, almost eight percentage points lower than the yield on similar maturity local-currency government bonds.
President Muhammadu Buhari’s administration is selling more foreign debt to help reduce the financing burden from paying double-digit yields on local-currency bonds.

That would help free up funds to increase investment in infrastructure and spur economic growth.
The International Monetary Fund (IMF) forecast the Nigerian economy will expand by 2.1 per cent this year compared with 0.8 per cent in 2017, driven by the oil sector.

The issuance is “subject to market conditions”, Oniha said in an interview in Abuja. The whole $2.5 billion could be raised in one go or in tranches, she added.

Oniha said the government also plans to begin talks with JPMorgan about being included in its government bond index for emerging markets.

The nation’s naira securities were removed in 2015 because of foreign-currency shortages.
“We would like to get back on the index,” Oniha said.

Daily trading volumes for the naira have risen to about $200 million from as little as $20 million three years ago, according to Standard Chartered Plc. That bodes well for discussions on returning to the index, according to Oniha.

“The securities trading was never the problem, it was always the foreign-currency liquidity,” which has now improved, she said.
“The government is looking to sell another Sukuk — debt that complies with Sharia principles — after the 2018 budget is approved. The securities are tied to specific projects,” Oniha added.

Nigeria in September sold a seven-year Sukuk of N100 billion ($278 million), and used the proceeds to fund development of 25 roads across the country.

Due to declining borrowing costs in Nigeria, corporate bond sales are expected, probably after the second quarter as the process of issuing improves, Oniha explained.

“There is money on the table. Rates are lower. So let’s begin to work on encouraging corporate bonds. The main reason there aren’t many corporate bonds in Nigeria is because interest rates were too high,” she said.
Of the $3 billion raised in November’s Eurobond sale, $2.5 billion went to funding the 2017 budget, and $500 million to refinancing local debt.

On her part, the Finance Minister Kemi Adeosun said the government was focused on improving the economy, saying indexes would “naturally” return to Nigeria when they see adjustments in line with their requirements.

“JPMorgan have their own framework of how they evaluate an economy, and when they are ready, when conditions are good, they will list Nigeria again,” Adeosun said in an interview in her office in Abuja

She added: “We should just move in our own direction. What we need to do is to re-position this economy. JPMorgan or any other index will come naturally.

“My focus really is on the recovery of the economy. They will come when the macro fundamentals are right. They left because the macro fundamentals were not right.”

Meanwhile, Vice-President Yemi Osinbajo Thursday said a weaker United States dollar does not necessarily hurt the Nigerian economy.
According to Reuters, Osinbajo made the comment after U.S. Treasury Secretary Steven Mnuchin welcomed a weaker dollar, saying it benefited U.S. trade balances in the short term.

OPEC member Nigeria is Africa’s largest oil producer. Crude oil sales make up two-thirds of Nigeria’s government revenues and most of its foreign exchange earnings.

“A weaker dollar doesn’t necessarily hurt Nigeria,” Osinbajo said while speaking at the World Economic Forum (WEF) in Davos.
“We are concerned most about ensuring that we are able to make our own exports cheaper and we are working on all of that. Our major concern is how to make ourselves more competitive,” he added.
The welcoming of a weakened dollar, seen by markets as a departure from the usual U.S. currency policy, has been seen as an indication that President Donald Trump is stepping up his attack on China and other big trading partners as part of his America First agenda.
Trump arrived in Davos Thursday.

Earlier this month, the president was accused of using vulgar language against Haiti and African countries, though he denied using the specific language.
“We need each other: Africa needs America. America also needs Africa in several important ways, so for me the most important thing is that we continue to maintain those relationships,” Osinbajo said, when asked about the alleged remarks.

“I’m also told that Mr. Trump has said that he did not in fact make those statements and we should be able to accept that,” he said.
The vice-president also discussed security in Africa’s most populous nation, which is contending with Islamist militant Boko Haram insurgents in the North-east and working to maintain a fragile peace in the restive southern Niger Delta oil-producing region.
“We are recruiting more policemen and we are recruiting more people in the army. Security is dynamic and you have to keep working at it,” Osinbajo said. He did not provide details of the number of new recruits.

Attacks on energy facilities in the Niger Delta region pushed Africa’s biggest economy into recession in 2016, its first in 25 years.
Niger Delta Avengers, the group which claimed responsibility for most of the attacks, last week said it would resume attacks within days.

“We are in constant consultation with all groups in the Niger Delta,” said Osinbajo, when asked about the government’s response to the latest threat.

The country’s recovery has largely been driven by crude oil sales since emerging from the recession in the second quarter of 2017.