November 17, 2018/Cordros Report
On Wednesday, Nigeria closed out on its highly anticipated Eurobond issue, raising a total of USD2.86 billion, comprising a USD1.18 billion 7-year series, USD1 billion 12-year series, and USD750 million 30-year series. The issue was oversubscribed, with a bid to cover ratio of more than 3x, and priced fairly at a weighted average yield of 8.4%, relative to the indicative rate of 8.6%1.
To assess the immediate impact of the issue, we highlight that the USD2.86 billion translates to roughly 44% of the deficit in the 2018 budget using the official rate of NGN305/USD. Combining the issue with the domestic net bond issuance of NGN571 billion, the FGN is near completing the total borrowing of NGN1.6 trillion required to partly fund the deficit in the 2018 budget.
Concern, however, is that in the context of the fiscal year spending target of NGN9.1 trillion, amidst underperforming revenues, there lies the risk of some way higher deficit than budgeted, in which case the FGN may (1) raise higher debt than budgeted or (2) reduce budget expenditure implementation.