"Nigeria eyes $30bn from debut forex bond"

" Nigeria eyes $30bn from debut forex bond \r\nNigeria could raise up to $30 billion from its maiden foreign currency-denominated bond issuance planned for June, Patience Oniha, director-general of the Debt Management Office has said.\r\n\r\nThe $30 billion is about the estimated size of dollar assets within the country\u2019s local banking industry.\r\n\r\nAuthorities said the sovereign domestic foreign currency issuance aligns with moves to attract more forex inflows to stabilise the naira, which had suffered immensely from dollar shortages.\r\n\r\nIn a telephone interview with BusinessDay, Oniha confirmed earlier statements by Wale Edun, minister of finance and coordinating minister for the economy, that the debut forex bond is being planned for the second quarter of 2024, and will be a short to medium-term instrument.\r\n\r\nShe said the transaction advisers were yet to be appointed for the deal, but were being banked on for proper projections on what could come in.\r\n\r\n\u201cIt\u2019s when we appoint the advisers that we can probably do a projection.\r\n\r\nOniha said: \u201cBut the assumption is that there are many Nigerians holding dollars in their domiciliary accounts, and not just individuals but institutions including banks themselves and Nigerians in diaspora as well.\r\n\r\n\u201cSo it\u2019s a way of bringing dollar liquidity into the system; the federal government of Nigeria (FGN) will get needed dollar liquidity. The target investors are individual Nigerians, the institutions, and if Nigerians in the diaspora want to invest, they can as well.\u201d\r\n\r\n Good move, but debt concerns remain \u2013 Experts \r\n\r\nLike the debut eurobond issuance in 2011, the maiden forex bond is also expected to open up local issuance of similar bonds by companies and sub-nationals, a plan already given provisional approval by the country\u2019s apex capital market regulator.\r\n\r\nOniha said: \u201cThe difference between the foreign currency bond and the Eurobond is that it will be issued locally and not offshore.\r\n\r\n\u201cIt\u2019s like issuing FGN bonds in foreign currency \u2013 and not likely that the government will be using the primary dealer market but will issue foreign currency bonds in the local market.\u201d\r\n\r\nOniha also confirmed that considering the nature of the deal, Know Your Customer (KYC) principles will strictly be adhered to.\r\n\r\nShe said: \u201cTruly, the way it\u2019s going to work is to take care of KYC and make sure that there is compliance with the laws.\r\n\r\n\u201cThe KYC will ensure that Nigeria aligns with FATF and certain conventions that the country had signed on to. You also know there is already a prohibition; if you deposit cash in your domiciliary account, you can\u2019t transfer it.\r\n\r\n\u201cWe we want to guard against a situation where people go to the black market and buy dollars to invest in these bonds, and then distort the market that government is working so hard to statbilise.\u201d\r\n\r\nThe transaction advisers, when appointed, will work out possible yield, she said it will be attractive enough to lure prospective investors, although likely below eurobond rates.\r\n\r\nShe said: \u201cWe have to offer them something around the eurobond or any other eligible foreign currency instrument.\r\n\r\n\u201cYou already know that for eurobond, you are raising billions, you are dealing with institutional investors; so the rate seems to be high. But we are looking at local retail investors; we\u2019ll look at US treasuries. In my mind, it will certainly be lower than eurobond yield.\r\n\r\nAfter Adeduntan\u2019s sudden departure, Segun Alebiosu set to become acting CEO of First Bank\r\n\u201cThose are the two references we have said we\u2019ll use because retail investors are not getting eurobond rates, but you still want them to invest; so it has to be attractive.\r\n\r\n\u201cThese are our thought strategy for now! when we get the advisers, they may have a review but the intention is not to offer eurobond rate in the local market.\u201d\r\n\r\nThe director general confirmed that when matured, the bond will be repaired in the same currency it was issued.\r\n\r\nWhile she erased concerns around debt, she noted that borrowing is part of what is already approved in the budget.\r\n\r\nShe equally debunked earlier rumours that the government was planning to convert people\u2019s domiciliary accounts in local banks into naira, and called such \u201cfalse assumptions which emanated when this product was being designed\u201d.\r\n\r\nShe also clarified that the pension fund administrators can invest in the bond if their guidelines allow them. \u201cSome PFAs actually invest in our eurobonds, so there is no difference.\u201d\r\n\r\nJohnson Chukwu, CEO of Cowry Asset Management Limited, has called the planned deal a good move, but expressed worry about the utilisation of proceeds and possible debt concerns.\r\n\r\n\u201cWe need foreign currency liquidity to meet maturing obligations. Most of these instruments are short-dated and some of them will be maturing in a few months. Upon maturity, we need liquidity to fund their repayments and given that our crude oil production is actually not improving, this will be the surest way to avoid a default,\u201d he said.\r\n\r\nChukwu is also of the view that the government could get any amount being projected but certainly will come at a very huge cost.\r\n\r\nHe said: \u201cI wouldn\u2019t know what government projections are in terms of yield, but I can say it will be market-determined. When they come to the market, and the offer opens, the investors are going to dictate the kind of minimum yield they expect.\r\n\r\n\u201cI think investors are going to price in the risk of default. For instance, Ghana has defaulted; I think Ethiopia has too. So investors will price in the risk of default and they will charge an appropriate premium for that.\u201d\r\n\r\nChukwu highlighted how the deal could impact the country\u2019s debt service obligation as well as overall debt, which has reached N97 trillion.\r\n\r\nHe said: \u201cLast year, total local currency debt service was about N4.4 trillion; foreign currency was $3.5 billion. If you even use an average rate of N1,200, you are talking about N4.2 trillion. So if you add both, you are talking about N8.6 trillion as debt service last year.\r\n\r\n\u201cIf, for instance, the government borrows $10 billion now, at a minimum of 10 percent, you will expect another debt service of $1 billion (about N1 trillion). And if you add that to the N8.6 trillion, you\u2019re already at N9.6 trillion and then you have to juxtapose that against our revenue.\r\n\r\n\u201cWith this, we are running into a situation where the debt service is going to be a big burden to us. And that debt service of N10 trillion excludes the additional debt service that will come from additional borrowings expected this year.\r\n\r\n\u201cRemember that we have borrowed about N12.7 trillion already this year, at an average of 20 percent; that is about N2.5 trillion debt service and when you add this to N9.6 trillion, that will give you about N12 trillion debt service, which clearly is higher than the N8.25 trillion in this year\u2019s budget.\r\n\r\n\u201cThe budget this year doesn\u2019t have a debt service projection of N12 trillion. So the concern is what would be federal government revenue at that point. If you are not careful, you\u2019ll achieve a debt service to revenue of about more than 100 percent.\u201d\r\n\r\nOn the possibility of possible losses outweighing the proposed gains, Chukwu said: \u201cIt\u2019s all about where you put the money \u2013 N12.7 trillion has been borrowed, where was it invested in? The N22.7 trillion ways and means, where was it invested in? If you invest the proceeds in income earning assets that are giving you returns higher than the cost of funds borrowed, then you are good.\r\n\r\n\u201cBut if it\u2019s basically just to prepare to pay back liabilities, it\u2019s not sustainable, and will be depleting our scarce resources.\u201d\r\n "

"Nigeria eyes $30bn from debut forex bond"

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