FG Taps Three US Lenders for $2.2bn Eurobonds

Nigeria is re-entering the international capital markets for the first time in over two years with a Eurobond issuance aimed at addressing its widening fiscal deficit.

According to documents shared with potential investors, the government is offering a 6.5-year bond and a 10-year benchmark bond, with expected yields of 10.125% and 10.625%, respectively. The Federal Government aims to raise at least $500 million for the shorter-term bond from international investors.

This marks Nigeria’s first Eurobond issuance since March 2022, highlighting efforts to tackle fiscal challenges. The bonds, denominated in US dollars, will be structured under the 144A/Reg S format, accessible to both U.S. and international investors, and listed on the London Stock Exchange. Settlement is scheduled for December 9, 2024, with denominations starting at $200,000 and increments of $1,000 thereafter.

The issuance garnered strong investor interest, with over $9 billion in subscriptions. However, only $2.2 billion was allocated: $700 million for the 6.5-year bond priced at 9.625% and $1.5 billion for the 10-year bond priced at 10.375%.

The Debt Management Office (DMO) noted the wide-ranging participation from investors across the UK, North America, Europe, Asia, the Middle East, and Nigeria, attributing the success to confidence in Nigeria’s macroeconomic policies and fiscal management.

Proceeds from the Eurobond sale will support Nigeria’s budget, which faces a record deficit of ₦4.65 trillion, driven by low oil production, weak tax revenue, and insufficient economic diversification. The 2024 budget deficit of ₦9.18 trillion (3.88% of GDP) is primarily financed through borrowing.

A consortium of financial institutions, including Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Standard Chartered Plc, managed the issuance, with Chapel Hill Denham Advisory Limited acting as the Nigerian bookrunner.

Finance Minister Wale Edun lauded the issuance as a reflection of growing investor confidence in President Bola Tinubu’s economic reforms. “The success demonstrates increased confidence in the administration’s efforts to stabilize the economy and promote inclusive growth,” he said.

Central Bank Governor Olayemi Cardoso added that the strong demand underscores improved liquidity and Nigeria’s resilience in accessing international markets.

DMO Director-General Patience Oniha highlighted the competitive pricing of the bonds, emphasizing that the order book peaked at 4.18 times the offer amount, reflecting robust investor demand.

This issuance follows the $1.25 billion Eurobond raised in March 2022. Earlier plans for a Eurobond issuance in June 2024 were reconsidered due to concerns about high borrowing costs but later revived in November to address the 2024 budget’s revenue shortfalls.

The government also plans to issue a $500 million Sukuk bond, marking Nigeria’s first dollar-denominated Islamic bond issuance.

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Nigeria’s external debt stood at $42.9 billion as of June 2024, with Eurobonds comprising $15.12 billion (35.24%). Fitch Ratings projects the country’s external debt service costs will rise from $4.8 billion in 2024 to $5.2 billion in 2025, driven by amortizations, including a $1.1 billion Eurobond repayment due in November.

The African Development Bank (AfDB) Vice President, Kevin Urama, has highlighted the mounting debt crisis across African nations, noting a 500% increase in borrowing costs from private creditors compared to multilateral institutions. Africa’s public debt has surged by 170% since 2010, exacerbated by structural global debt issues, macroeconomic challenges, and global shocks.

Urama warned against the reliance on high-cost, short-term debt for long-term development projects, emphasizing its implications for debt sustainability. Between 2015 and 2022, the average debt servicing costs for African countries rose from 8.4% to 12.7% of GDP, underscoring the severity of the continent’s debt burden.