Nigeria will start meeting investors in London tomorrow to build support as President Goodluck Jonathan’s victory in a primary election boosts confidence in the political stability of the country.
Nigeria will seek to raise $500 million after Finance Minister Olusegun Aganga meets with investors, his spokesman, Bayo Adeniji said by phone from Abuja, yesterday.
The proposed bonds will mature in 10 years, said Jeremy Brewin, who helps manage $2.5 billion at Aviva Investors in London and was among the investors who received notice of the meetings.
The continent’s biggest oil exporter is pushing ahead with its bond sale plans, first announced in September 2008, as crude trades near the highest level in two years and before the final presidential election scheduled for April 9. President Jonathan won the nomination of the ruling People’s Democratic Party on January. 14, ending uncertainty over his candidacy.
“Jonathan has just had a resounding victory in the PDP primaries, so that element of political risk will for the moment at least not be at the forefront of investors’ minds,” Razia Khan, head of Africa regional research at U.K.-based Standard Chartered Bank, said by phone, yesterday.
The bonds of the world’s biggest cocoa producer declined 0.2 per cent to 37.667 cents on the dollar as of 1:38 p.m. in Abidjan, the commercial capital, according to data compiled by Bloomberg. That drove the yield on the 2.5 percent debt due 2032 up 3 basis points to 16.876 percent.
Nigeria is rated B+ by Standard and Poor’s, four levels below investment grade. Senegal, a similarly rated West African country, has $200 million of dollar bonds due in 2014 that yield 8.543 per cent, according to prices on Bloomberg.
Nigeria may get a lower yield at 6 to 6.5 per cent for 10-year notes, Stuart Culverhouse, chief economist at Exotix Ltd., a London-based brokerage, said in a phone interview, yesterday.
“Investors would prefer a larger issue say of $1 billion or $750 million,” Culverhouse said. A $500 million issue may not be “particularly liquid,” he said. Nigerian officials will meet investors in two cities in the U.S. after London, Adeniji said, without providing further details.
The country’s credit quality may suffer if it is drawn into any military conflict resulting from the political crisis in Ivory Coast, said David Damiba, managing director of London_ based Renaissance Asset Managers, with $150 million of assets in Africa. Leaders of the Economic Community of West African States pledged on Dec. 24 to use military force to remove Gbagbo from power if he refused to step down. Military leaders from the region are due to meet this week in Mali to discuss possible intervention plans.
An eventual Ivory Coast default would be “an independent event” that shouldn’t affect the pricing of other regional bonds, Damiba said. Nigeria, sub_Saharan Africa’s second_largest economy, plans to use the Eurobond as a benchmark for local companies to price debt and fund development projects, Aganga said in September. The country appointed Citigroup Inc. and Deutsche Bank AG to manage the bond sale, helped by Barclays Capital and FBN Capital Ltd.

http://www.vanguardngr.com/2011/01/nigeria-plans-10-year-bond-in-first-foreign-sale/

This, I think is good news. A small amount of money being borrowed, but as the article indicates, will better help investors both home and abroad set interest rates. If this increases our access to foreign capital, I think it will be well worth it.

I'd like to see what Katsumoto and others with economic/business training think of this.

Is this also where the government intends to get the $200 million it plans to fund the entertainment industry with?

I don't think it makes any sense. Nigeria's foreign reserves in billions have depleted since GEJ became president. What is the point of wasting billions only to borrow $500 million. I saw this on bloomberg yesterday and I laughed and shook my head in disgust.

Also, I think investors will require significantly more than 6.5% yield on the notes because $500m is such a small amount. The more you borrow, the lower your rate of interest. Ireland was rescued with a package of $112 billion on 5.8% interest because it could not afford the 8.6% (Dec 2010) interest demanded by the market for its ten year note. Ireland has a AA- rating which is 5 grades higher than Nigeria's B rating (Junk bond status).

Nigeria no doubt will be able to afford this but why should Nigeria pay the high interest that will accrue on this debt when $500m should not really be a problem. Investors may also refuse to buy these bonds causing further damage to Nigeria's reputation. It will be interesting to see how much Nigeria is able to raise and at what rate of interest.

I wont be surprised if there are some corrupt officials who use this avenue to get excellent returns on their stolen wealth.

@ Eku Bear, see below


Mounting concern about a huge outflow of money from Nigeria’s “rainy day” oil fund has prompted some big investors to shun d country’s debut international bond issue on Friday.

Nigerian officials said an investor roadshow to market the $500m bond issue had generated considerable appetite among international investors.

However, several major funds have told the Financial Times they are not interested in the deal because of Nigeria’s deteriorating fiscal situation and worries about how President Goodluck Jonathan’s government has run the excess crude account, designed to store up windfall oil revenues.

D account was set up under former President Olusegun Obasanjo, who stood down following 2007 elections. At dat time there was $20bn in the fund. But as recently as last September there was less than $400m, according to public disclosures, which showed billions flowing out of the account last year.

To deflect questions about the constitutionality of the fund, the federal government struck a deal in 2007 to divide oil windfalls between national, state and local governments.

Since then, more than $30bn of revenues – calculated on the difference between the budgeted and market price of oil – has flowed out of the account, according to donor and government officials. The funds went partly in regular payments to state governors over which there was little subsequent oversight, and partly in federal spending on infrastructure.

“The fact they have run down the excess crude account is very worrying,“ said Antoon de Kler at Investec based in Cape Town, adding that “it is unclear where the money is going”.

“Why does a country that relies for 90 per cent of its income on oil, which has seen a big rise in price, need to run down its foreign exchange reserves? For these reasons we are not buying the bond.”

Other big international investment funds, which invest in Africa, also told the FT they would not participate in the sale. Some Nigerian politicians and officials have questioned why foreign reserves have not risen, and the excess crude account did not grow during the past year of rising oil prices.

Revenues from oil sales go direct to the Nigerian National Petroleum Corporation, the state oil company, before reaching the central bank.

Technocrats in Mr Jonathan’s administration say Nigeria would have earned nearly $16bn in windfall revenues in 2010, based on production of 750m barrels of oil with average oil prices $21 higher than the $60 budgeted.

http://www.ft.com/cms/s/0/05e178da-24d3-11e0-a919-00144feab49a.html#axzz1BeqPgHaV

Nice post Kasumuto

Even somebody like my self who has no finance background would be wary of this bond thing.


Before obj left we had the following

Reserves - 50billion

Excess crude account - 20 or 30 billion


In the aftermath of yAR/geJ adminstration

We now have -

R - 30bill

eca - 400million


THe question is where did all this money one go in four years - and how can we justify borrowing a measly $500 million

when we can take the 500 Million from the reserve.


I repeat a government of GEJ according to the above mismanagement will surely bankrupt Nigeria.

blacksta:

Nice post Kasumuto

Even somebody like my self who has no finance background would be wary of this bond thing.


Before obj left we had the following

Reserves - 50billion

Excess crude account - 20 or 30 billion


In the aftermath of yAR/geJ adminstration

We now have -

R - 30bill

eca - 400million


THe question is where did all this money one go in four years - and how can we justify borrowing a measly $500 million

when we can take the 500 Million from the reserve.


I repeat a government of GEJ according to the above mismanagement will surely bankrupt Nigeria.

Thats the cost of PDP presidential ticket . Our messiah has to please all cheats right from LGA's to national house to get the ticket