06-28-2018, 10:59 AM
Nigeria eyes $2.8bn Eurobond to finance 2018 budget
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The Federal Government through the Debt Management Office (DMO) intends to raise up to $2.8 billion (N899bn) in Eurobonds, as part of its plan to finance the 2018 budget, and will explore all options to lower costs, the head of the Debt Management Office Patience Oniha (DMO) told Reuters.
The DMO said it has sent the request for a proposal to banks for an international bond offering, but it is waiting for the legislative arm of government to give a nod for the new borrowing.
“We will explore all options keeping in mind our twin objectives of extending the tenor of the debt stock and lowering costs,” Oniha told Reuters, without giving in depth details. Nigeria’s external debt surged 16 percent from $18.9 billion in full year 2017 to $22 billion as at March 31st 2018.
The federal Government through the ministry of finance had successfully sold $2.5 billion of Eurobonds to compliment the $3 billion it raised in November last year, as part of its on-going debt restructuring strategy aimed at increasing external debts from 23 percent to 60 percent, and cutting down on domestic debts from 77 percent to 40 percent. It now has around 23 percent of its debt from foreign borrowings, up from 16 percent when it approved the plan.
“It is not surprising that Nigeria is making this move to raise another Eurobond as it said earlier that it could tap from the capital markets or concessionary loans from the World Bank as possible options after the 2018 budget had been approved,” Wale Aokunrinboye, Head of research Sigma pension told BusinessDay on phone.
“With this move however, we should expect to see our foreign reserves cross over $50 billion,” he added. Oniha in January said the DMO could tap capital markets or concessionary loans from the World Bank and would consider funding options after the 2018 budget had been approved.
According to her “for government to plan execute its plan enunciated by the Economic and Recovery Growth Plan (ERGP), Medium Term Economic Framework (MTEF) and other associated fiscal strategies, it has to spend and borrowing is a mechanism to do that”.
President Muhammadu Buhari last week signed a record N9.12 trillion budget for 2018 into law, aimed at fostering growth in Nigeria before elections next February, in which he will seek a second term.
The government has laid out plans to borrow abroad even though interest rates are rising in the United States which could see the West African country pay a higher premium on this occasion compared with its most recent debt sale in February.
This is despite several warning from global rating agency Fitch and the International Monetary funds on the high refinancing cost that comes with Eurobond issuance especially countries with a weak local currency.
“Borrowing in foreign currency in international markets, exposes sovereigns to Foreign Exchange (FX) refinancing risk and a potentially higher debt service/GDP burden in the event of local currency depreciation,” It said.
“Although it can appear cheaper if domestic interest rates are high, as in Nigeria, which used the proceeds of its February issue to refinance more expensive naira-denominated debt, it generally involves a net increase in risk,” The global rating agency added.
http://www.businessdayonline.com/exclusi...18-budget/
[email=<img width=] [/email]
The Federal Government through the Debt Management Office (DMO) intends to raise up to $2.8 billion (N899bn) in Eurobonds, as part of its plan to finance the 2018 budget, and will explore all options to lower costs, the head of the Debt Management Office Patience Oniha (DMO) told Reuters.
The DMO said it has sent the request for a proposal to banks for an international bond offering, but it is waiting for the legislative arm of government to give a nod for the new borrowing.
“We will explore all options keeping in mind our twin objectives of extending the tenor of the debt stock and lowering costs,” Oniha told Reuters, without giving in depth details. Nigeria’s external debt surged 16 percent from $18.9 billion in full year 2017 to $22 billion as at March 31st 2018.
The federal Government through the ministry of finance had successfully sold $2.5 billion of Eurobonds to compliment the $3 billion it raised in November last year, as part of its on-going debt restructuring strategy aimed at increasing external debts from 23 percent to 60 percent, and cutting down on domestic debts from 77 percent to 40 percent. It now has around 23 percent of its debt from foreign borrowings, up from 16 percent when it approved the plan.
“It is not surprising that Nigeria is making this move to raise another Eurobond as it said earlier that it could tap from the capital markets or concessionary loans from the World Bank as possible options after the 2018 budget had been approved,” Wale Aokunrinboye, Head of research Sigma pension told BusinessDay on phone.
“With this move however, we should expect to see our foreign reserves cross over $50 billion,” he added. Oniha in January said the DMO could tap capital markets or concessionary loans from the World Bank and would consider funding options after the 2018 budget had been approved.
According to her “for government to plan execute its plan enunciated by the Economic and Recovery Growth Plan (ERGP), Medium Term Economic Framework (MTEF) and other associated fiscal strategies, it has to spend and borrowing is a mechanism to do that”.
President Muhammadu Buhari last week signed a record N9.12 trillion budget for 2018 into law, aimed at fostering growth in Nigeria before elections next February, in which he will seek a second term.
The government has laid out plans to borrow abroad even though interest rates are rising in the United States which could see the West African country pay a higher premium on this occasion compared with its most recent debt sale in February.
This is despite several warning from global rating agency Fitch and the International Monetary funds on the high refinancing cost that comes with Eurobond issuance especially countries with a weak local currency.
“Borrowing in foreign currency in international markets, exposes sovereigns to Foreign Exchange (FX) refinancing risk and a potentially higher debt service/GDP burden in the event of local currency depreciation,” It said.
“Although it can appear cheaper if domestic interest rates are high, as in Nigeria, which used the proceeds of its February issue to refinance more expensive naira-denominated debt, it generally involves a net increase in risk,” The global rating agency added.
http://www.businessdayonline.com/exclusi...18-budget/