December 5, 2024/CSL Research
On Tuesday, December 2, 2024, Nigeria successfully raised $2.2 billion through Eurobonds in the international capital markets, marking its first issuance in over two years. The previous issuance occurred in March 2022, when the country secured $1.25 billion at an interest rate of 8.35%. The latest Eurobond offering consisted of two tranches with different maturities. A $700 million 6.5-year bond due in 2031 was priced at 9.625%, while a larger $1.5 billion 10-year bond due in 2034 was priced at 10.375%. This issuance, the first under President Tinubu’s administration, was met with robust demand, attracting a peak orderbook of over US$9 billion—more than four times the offer size.
Investors in the Eurobond spanned multiple jurisdictions, including the United Kingdom, Nigeria, North America, Europe, Asia, and the Middle East. Participants included fund managers, insurance and pension funds, hedge funds, banks, and other financial institutions.
The proceeds from the Eurobond issuance will be used to finance the 2024 fiscal deficit and support the ₦35.5 trillion amended budget for the year. This borrowing increases the nation’s external debt to over US$45 billion, up from US$42.9 billion as of Q2 2024, according to figures from the Debt Management Office (DMO). Additionally, it raises Nigeria’s total public debt to over US$95 billion, compared to US$91.3 billion reported at the end of the second quarter of the year.
While the strong investor demand for Nigeria’s Eurobond issuance signals confidence, the elevated borrowing costs raise concerns about the country’s financial stability. The coupon rate on Nigeria’s 10-year bond (10.375%) surpasses the 9.75% rate offered in August on the US$500 million domestic U.S. dollar-denominated bond. It also exceeds yields on similar debt instruments from countries within the West African Economic and Monetary Union (WAEMU) that accessed international markets this year. For instance, Benin issued a US$750 million bond in February 2024 at a 7.96% interest rate, maturing in 2038, with its current yield below 8%. Similarly, Côte d’Ivoire’s US$1.5 billion bond, issued in January 2024 with a 12-year maturity, currently yields 8.27%. Senegal’s June 2024 bond was issued at an interest rate of
7.75%.
These differences in borrowing costs highlight investor perceptions of varying levels of sovereign risk and economic stability among these nations. Nigeria’s higher yields reflect the additional risk premium demanded by investors, pointing to persistent vulnerabilities in its economy, particularly in the fiscal space.
On the positive side, the proceeds from the Eurobond issuance, expected to flow into Nigeria’s foreign exchange reserves by 09 December 2024, are projected to boost the reserves to over US$42 billion by year-end. This increase could provide the Central Bank of Nigeria (CBN) with greater capacity to support the Naira in the near to medium term, potentially leading to a modest appreciation of the domestic currency.
However, the added debt burden exacerbates Nigeria’s already strained debt service-to-revenue and debt-to-GDP ratio. The nation continues to grapple with weak revenue generation, largely due to declining crude oil receipts while the debt-to-GDP figure for the country is projected to reach 51.5% at year-end 2024, higher than the FY 2023 figure of 41.5% and the IMF forecast of 46.5%.
CSL Nigeria Daily – 05 December 2024 – Eurobonds.pdf
