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Nigeria’s $500m Eurobond put on hold over market concern

By Omoh Gabriel with Agency report
LAGOS — Nigeria is putting on hold a $500 million initial Eurobond offer originally planned for this year because of volatility in global markets but wants to launch the issue as soon as possible, government sources said weekend.

The bond was to part finance the 2010 budget which life span has been extended by the Federal Government to March 2011. The Federal Government had planned a road show to the United States this week to sensitise investors on the proposed first Nigeria bond in the international finance market but the plans were put on hold at the 11th hour because of what some officials termed market volatility due partly to the debt crisis in Europe.

Director-General of Debt Management Office, Dr. Abraham Nwankwo, while speaking to CNBC Africa TV said: “Given the rumblings in the euro zone over the past few weeks … we have considered it important to watch carefully over the next couple of weeks and as soon as possible make the offer.”

He had averred earlier in the year that notwithstanding  the recent revision of Nigeria’s credit outlook to negative from stable by ratings agency, Fitch, the  bond is expected to be over-subscribed. “It is likely to be over-subscribed. We’ve seen interest from the U.S., Europe and Asia. Many investors are already eager for the bonds. We will raise the bond very comfortably. The $500 million is very small compared to what we do every month on the domestic market,” he said

Sources familiar with the transaction, however, said  nervousness triggered by the debt crisis in Ireland had contributed to the decision to postpone the U.S.  road show and that talks were underway as to the eventual timing of the issue.

“By the original schedule, they should have travelled last night,” one of the sources told Reuters, declining to be named.

It would be recalled that the Federal Government first announced plans to borrow in the international bond market in September 2008 but later put the issue on hold, citing adverse market conditions.

Nwankwo in an interview with reporters last month said the aim of the 10-year bond was to set a benchmark in the global market for Nigeria rather than to raise funds, meaning the pricing is more important than the timing.

“Nigeria does not need the money, so it’s not as if the issue has to be done before the end of the year,” one source said.
Nigeria last month appointed Deutsche Bank and Citigroup as book runners for the Eurobond and named Barclays Capital and FBN Capital, a subsidiary of Nigeria’s FirstBank as its financial advisers. Citi’s Chief Executive Vikram Pandit said last Wednesday he anticipated significant demand for the issue.

Nigeria’s weakening fiscal position with external reserves, down almost a quarter from a year ago and a deficit set to widen to more than 6 per cent, combined with political uncertainty ahead of elections next April, had led some analysts to question whether there would be demand for the issue. In October, ratings agency Fitch lowered Nigeria’s sovereign credit outlook to negative from stable, citing the depletion of its reserves as a factor.

But most analysts say the relatively small size of the issue, appetite for high_yielding assets, and the paucity of West African debt issues means investors would be ready to shrug off those short_term risks.

Global markets have been volatile in recent weeks due to concern about European financial stability in the wake of the Greek and Irish debt bailouts.

U.S. Treasuries edged up in Asian trade on Friday after a sell_off this week that pushed benchmark yields to a six_month high. Such volatility means investors would be likely to demand a higher yield for debt from Nigeria, which is coming to the international market for the first time.

Nearby Ghana’s Eurobond GH032376037=RRPS traded at a yield of 6.198 per cent on Friday, up from 5.976 percent a month ago.


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