Nigeria made its international comeback last Monday after a near three-year absence to raise US$2.2bn across two tranches.

The trade was well telegraphed, with rumours emerging the week before that the sovereign was about to issue.

Originally aiming for a total size of around US$2bn, according to one lead, in the end, Nigeria (Caa1/B–/B–) was able to launch a US$700m June 2031 note at 9.625%, having initially offered the bond in the 10.125% area, and a US$1.5bn December 2034 at 10.375%, inside the 10.625% area IPTs.

The book for the long six-year topped US$4bn when 9.875% area guidance was announced, while orders for the 10-year exceeded US$4.8bn at the 10.5% area guidance. At their peak, combined orders exceeded US$9bn, according to the country’s debt management office.

The sovereign had been expected in the market this year, having not issued internationally since March 2022, and the cash is being used to fund the government’s 2024 fiscal deficit. Some bankers speculated that had the funding not been needed this year and Nigeria had been able to tap the market in early 2025, it might have achieved a less costly result.

The new issues mark the highest ever yields the country has issued at in the US dollar market, according to IFR data.

“It stands out that Nigeria is now willing to print above the previously discussed soft limit of 9%,” said Marten Bressel, a portfolio manager at FIM Partners.

He pointed out that at IPTs Nigeria was offering a 40bp–50bp new issue concession and was wide to similarly rated Kenya’s curve. Kenya is rated Caa1/B–/B–. Its US$1.5bn 9.75% February 2031s were bid at 9.77% on Monday morning, while its US$1bn 6.3% January 2034s were showing at 9.70%.

“At IPTs, the bonds are wide to Kenya, which strikes me as worth a look,” Bressel said, when the trade was first put on screens.

The subsequent secondary market rally in the new Nigeria bonds over the course of the week suggested that even at final pricing investors saw plenty of value in the tranches and several fund managers said they felt the notes looked "cheap".

Each tranche was priced at par and by Friday morning, traders were seeing the 6.5-year bid at a cash price of 101.87 and the 10-year at 103.37.

A second lead said that, to his mind, the move higher in prices was result of a risk-on market tone and not final pricing being too wide. "If you look, most of the rally came on Wednesday and Thursday, not right after the bonds were free to trade," he said.

Credit-wise, investors appear increasingly comfortable with Nigeria.

“Although much remains to be done, the macro and credit situation has improved since [2022] with the reforms undertaken by the [Bola] Tinubu administration, including on the FX side and subsidies,” said Raza Agha, head of emerging markets sovereign strategy at Legal & General Investment Management. “That’s reflected in the two rating outlooks on positive.”

Moody’s and Fitch hold positive outlooks, while S&P’s outlook is stable.

“Long term, we must wonder whether Nigeria can successfully invest and profit from debt where the interest rate is 10% in US dollars while GDP growth is just 3%,” said Charlie Robertson, head of macro strategy at FIM Partners.

“But in the short term, debt to GDP, external debt to GDP or external debt to export ratios all suggest Nigeria can carry this burden,” Robertson said. “And even at 10%–11%, the borrowing is apparently cheaper than the NNPC 'dollars for oil' borrowing done earlier in 2024.”

State-backed Nigerian National Petroleum Corporation has undertaken a series of crude-for-loans deals.

Source: IFR