Nigeria price $1.25bn Eurobond issue at 8.3%
The Nigerian debt management office has revealed that it has priced a $1.25 billion Eurobond issue at 8.375%.
This is high compared to existing tenors as the country sought to raise cash to fund a costly petrol subsidy scheme in the face of limited oil revenue.
The current debt issue of Nigeria marks eight outing on the Eurobond market after it sold a US$4 billion debt in September 2021 and had been considering more issues before fears around the Omicron coronavirus variant led it to shelve plans.
“The choice to go ahead with the Eurobond issue in the current adverse market conditions is likely connected to continued force majeure reducing oil revenue, while retained fuel subsidies are spiraling in tandem with the higher oil price,” said Mark Bohlund, senior analyst at Redd Intelligence.
According to the Finance Minister Zainab Ahmed, Nigeria planned to tap two billion euros (US$2.2 billion) this month or next of the money it raised in a Eurobond sale last year and target more local borrowing in 2022 to help fund its costly petrol subsidies as oil prices rise.
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The government in January reversed a pledge to end its subsidies then, and instead extended them by 18 months amid heightened inflation to avert any protests in the run-up to presidential elections next year.
At the same time, the price of oil has soared, so also has its cost as the country depends almost entirely on imports to meet its domestic gasoline needs. It also faces crude theft and vandalism in the Niger Delta, disrupting oil production.
With Thursday’s bond sale, Nigeria offered more than existing Eurobonds of 7.143%, creating extra debt service headache for the government struggling to boost growth with limited buffers.
President Muhammadu Buhari has said the country’s deficit would rise by 1.01 trillion naira to 7.40 trillion or 4% of GDP as the government eyes new borrowing for fuel subsidy. The deficit was originally set at 3.42% of GDP.
Analysts say deficit could rise above 10 trillion naira (US$24 billion) in 2022 on higher fuel subsidy cost amid rising oil prices.
