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FG plans $2.5bn Eurobonds sale in Q1 2018-DMO

By Yinka Kolawole, with agency report

THE Federal Government has commenced moves to raise $2.5 billion through issuance of Eurobonds in the first quarter of 2018 to refinance domestic debt.

•Oniha, DG, DMO

Director General, Debt Management Office (DMO), Patience Oniha, who disclosed this in an interview with Bloomberg, noted that the issuance is in furtherance of a  dollar-debt program  that started with the selling of $3 billion Eurobonds in November 2017. “The issuance is subject to market conditions. The whole $2.5 billion could be raised in one go or in tranches,” she stated.

Recall that of the $3 billion raised in November’s Eurobonds sale, $2.5 billion went to funding the 2017 budget while the balance of $500 million was used to refinance local debt.

The yield on dollar bonds due November 2027 have fallen about 60 basis points since they were issued late last year to 5.92 percent, almost eight percentage points lower than the yield on similar maturity local-currency government bonds.

The Buhari administration has been selling  Eurobonds to help reduce the  financing  burden from paying double-digit yields on naira bonds, in a bid to help free up funds to increase investment in infrastructure and spur economic growth.

Oniha further disclosed that the government is planning to sell another Sukuk bond – debt instrument based on Shariah principles – after the approval of 2018 budget, adding that the securities are tied to specific projects.

It would be recalled that the federal government had in September  2017 sold  a seven-year Sukuk of N100 billion (about $278 million), and released the proceeds to fund the development of 25 key economic road projects across the country.

Each of the geo-political zones of the country is expected to receive the sum of N16.67 billion for road projects in their respective zones.

The North-central and South-south zones accounted for five each of the 25 key economic road projects, while the North-east, North-west and South-east have four road projects each. Three projects are to receive funding from the Sovereign Sukuk proceeds in the South-west zone.

The DMO boss predicted that after the second quarter, as the process of issuing improves, corporate bond sales are expected, due to declining borrowing costs in the country. “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.

In a related development, the DMO DG is set to start talks with JPMorgan Chase & Co about being reinstated in its government bond index for emerging markets. The naira securities were  removed  in 2015 because of foreign-currency shortages.

“We would like to get back into the index. The securities trading was never the problem, it was always the foreign-currency liquidity,” which has now improved,” Oniha said.


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