Eurobond issue four times oversubscribed as Nigeria sinks deeper into debt

The Federal Government of Nigeria successfully raised $4 billion from the Eurobond market, with the issue 400 per cent oversubscribed but pricing remains expensive.

This, according to the Debt Management Office, surpassed its initial target of $3 billion for the first tranche.

The success of the issue according to experts is making the government consider tapping the Eurobond market for more funds, even as they consider this an indication of heightened investor confidence and interest in the Nigerian debt instrument.

The yields for the issue were at 6.13 per cent (7-yr tenor), 7.38 per cent (12-yr tenor) and 8.25 per cent (30-yr tenor).

Analysts say this is positive news for the government especially in the wake of the exchange rate pressure and policy uncertainty which have dampened investor sentiment.

Experts from Financial Derivatives Company Limited said the Eurobond proceeds will help to shore up the external reserves towards $40 billion and this will help strengthen the naira at the parallel market in the short term.

It also noted that the downside of raising more debt, however, is the risk of falling into a debt trap as the Eurobond issuance will increase the governments external debt stock.

As at second quarter (Q2) 2021, Nigerias external debt was approximately $36 billion.

The low interest rate environment globally has benefitted emerging markets who are rushing to raise funds from the international debt market before a tightening stance commences in advanced economies and borrowing costs rise, the experts posit.

Earlier, DMOs Director-General, Patience Oniha, had disclosed that Nigerias total public debt stock rose from N33.11 trillion as of March 31, 2021 to N35.47 trillion as of June 30, 2021.

This shows an increase of N2.36 trillion or 7.13 per cent increase within the three-month period.

The total external debt stock rose from N12.47 trillion as of March 31 to N13.71 trillion as of June 30, indicating an increase of N1.24 trillion or 9.94 per cent.

The total domestic debt stock according to DMO rose from N20.64 trillion as of March 31 to N21.75 trillion as of June 30, indicating an increase of N1.11 trillion or 5.38 per cent

Nigeria spent N445.4 brillion on debt servicing payments in the second quarter of this year, the latest data obtained from the Debt Management Office have shown.

According to the DMO, from April to June 2021, Nigeria spent N322.7 billion on domestic debt servicing, while $299 million (N122.7 billion) was spent on external debt servicing.

For domestic debt, Nigeria spent N258 billion in April, N42.4 billion in May, and N22.3 billion in June.

A breakdown of the statistics shows that the Federal Government spent a total of N322.7 billion on the payment of interest, with N50.3 billion expended on the redemption of matured Nigeria Treasury Bills between April and June 2021.

For external debt servicing, commercial loans had 53 per cent with a cost of $157,012.17, multilaterals had 35 per cent with a cost of $103,732.70, and bilateral had 13 per cent with a cost of $38,220.88.

Meanwhile, so far in 2021, Ivory Coast, Nigeria, Senegal, Ghana, Egypt and Kenya are some of the countries that have visited the Eurobond market.