Nigeria has successfully raised $2.2 billion through its latest Eurobond auction, marking a significant step in its efforts to address a widening fiscal deficit. This issuance, the first since March 2022, represents the government’s return to the international capital markets amid ongoing fiscal pressures caused by revenue shortfalls and increasing public spending.
The proceeds from the Eurobond will be used to finance Nigeria’s 2024 budget, which is facing strain from persistent economic challenges.
Details of the Issuance
According to sources cited by Nairametrics, the auction attracted subscriptions totaling over $9 billion. However, only $2.2 billion was allocated, with $700 million placed in 6.5-year bonds priced at a coupon rate of 9.625% and $1.5 billion in 10-year bonds at 10.375%.
The bonds were issued under the Regulation S/144A structure, enabling participation from U.S. and international investors.
Concerns Over Yield Levels
While the oversubscription reflects strong investor interest, the high yields—particularly the 10.375% rate for the 10-year bonds—have raised concerns. Analysts suggest that such elevated pricing signals heightened risks associated with Nigeria’s economic outlook and creditworthiness, pushing the nation’s debt closer to “junk status.”
The timing of the bond issuance has also surprised some investors, given the elevated rates compared to previous offerings. This highlights growing unease about Nigeria’s ability to manage its debt effectively.
Investor Interest and Global Participation
The Debt Management Office (DMO) announced that the bonds attracted a wide range of investors from jurisdictions such as the United Kingdom, North America, Europe, Asia, and the Middle East, along with participation from domestic Nigerian investors.
The DMO’s statement read:
“The Federal Republic of Nigeria successfully priced $2.2 billion in Eurobonds maturing in 2031 (6.5-year) and 2034 (10-year) in the international capital markets on December 2, 2024. The Notes were priced at a coupon and re-offer yield of 9.625% and 10.375%, respectively.”
It also emphasized the oversubscription of the bonds, which achieved a peak order book of over $9 billion, underscoring strong global investor interest across various sectors, including fund managers, insurance and pension funds, hedge funds, banks, and other financial institutions.
Government and Institutional Response
Finance Minister Olawale Edun praised the strong investor interest as evidence of confidence in President Bola Tinubu’s economic reforms aimed at stabilizing the Nigerian economy and fostering sustainable growth.
Central Bank Governor Olayemi Cardoso echoed this sentiment, noting that the successful bond issuance reflects improved investor confidence in Nigeria’s liquidity and market access.
DMO Director-General Patience Oniha hailed the transaction as a landmark achievement, citing the competitive pricing and robust demand, which was more than four times the offer size. The DMO reiterated its commitment to transparency and continued engagement with investors.
Key Takeaways
• This marks Nigeria’s first return to the international capital markets in over two years, with proceeds aimed at bridging the 2024 budget deficit.
• The bonds will be listed on the London Stock Exchange’s Main Market and will settle on December 9, 2024, with denominations starting at $200,000.
• High yields reflect ongoing concerns about Nigeria’s economic stability and creditworthiness.
Fiscal Challenges and Economic Implications
The Eurobond proceeds are expected to provide critical support for Nigeria’s budget amidst a widening fiscal deficit caused by disrupted oil production, low tax revenue, and insufficient economic diversification.
Managed by an international consortium including Citigroup, Goldman Sachs, JPMorgan Chase, and Standard Chartered, with Chapel Hill Denham Advisory Limited as the Nigerian bookrunner, the bond issuance represents a crucial effort to stabilize Nigeria’s financial outlook.
However, the elevated yields underline the urgency for reforms to enhance fiscal sustainability and reduce the country’s reliance on external borrowing.
