Nigeria’s Economy Remains Resilient With 780% Oversubscription of Eurobond

Not even the recession plaguing Nigerian Economy could deter international investors from patronizing the $1 billion Eurobond issued by the Federal Government last Thursday.

Investors swooped on the bond, which the Federal Government sold at the international market to raise $1 billion to finance capital expenditure and deficit in its budget, subscribing to it about eight times over. Given the success of the $1 billion Eurobond issue, which was subscribed to in excess of $7.8 billion, translating to an oversubscription of 780 per cent, analysts have posited that the development showed that the Nigeria’s Economy is still resilient and attractive to foreign investors.

The $1 billion Eurobond, which is a borrowing with an annual coupon of 7.875 per cent over a period of 15 years is a third issue by the Federal Government with February 16, 2032 as maturity date for repayment on the principal. The precursors were issued in 2011 and 2013.

The government has said the offering attracted significant interest from leading global institutional investors. “Nigeria will apply for the notes to be eligible for trading and listed on the Nigerian FMDQ OTC Securities Exchange and the Nigerian Stock Exchange,” finance ministry said in statement.

According to the Minister of Finance, Mrs. Kemi Adeosun, who spoke with journalists at the conclusion of the transaction, “The Eurobond is part of our funding strategy for our 2016 capital expenditure and will be spent on key infrastructure projects, in line with our economic plan. The investment community understands the strategy we are adopting and have been positive. That is reflected in the bond being almost 8 times oversubscribed.”

Adeosun enthused that, “The international capital markets are a key source of capital for us and our sovereign issuance provides a key benchmark for corporate borrowers looking to tap the ICM.”

According to the Executive Director, Corporate Finance at BGL Capital Limited, Mr Femi Ademola “The oversubscription will lower the country’s risk profile and help corporate entities in Nigeria to attract foreign capital at good yields. It may also suggest that the economic recession is locally overrated.”

Ademola also noted: “Another important thing is that the loan is tied to capital expenditure in the budget, that is, social/economic investment which could in turn generate economic activities and attract tax revenue for the repayment of the loan. In other words, the application of the loan and the response from investors justifies the argument that debts are not a bad idea for public investment purposes.”

What this entails, in our assessment, is that the Federal Government will be encouraged to take advantage of this success to reflate the economy in this recession, rejuvenate the otherwise turbulent market while at the same time channeling the proceeds towards funding capital expenditures .

Likewise, the interpretation is that the country has successfully extended the tenor of her borrowing programme in the international capital markets to 15 years. The Eurobond, in the estimation of the authorities, is the latest step in a broader debt strategy designed to significantly re-balance the nation’s debt profile towards longer term financing  as it contends with efforts to reduce the burden of interest on the annual budget.

For Nigeria, the successful issuance of the Eurobond has opened the window for the private sector to raise the required foreign currency funds. Local banks and other companies are now able to fund long-term real sector projects in agriculture, manufacturing, housing, mineral exploration and processing, infrastructure for diversified and sustainable economic growth, towards employment generation and poverty reduction.

With this development, growth is anticipated in the economy which would lead to increased output and most firms should be experiencing increased profitability. This higher profit makes the company shares more attractive – because they can give bigger dividends to shareholders.

Nevertheless, there are contrary opinions to the above assertion. According to the Managing Director, MBC Securities Ltd (Member of the Nigerian Stock Exchange), Olutoyin Ayoade, “In determining the credibility or credit worthiness of the borrower (FGN), the first consideration for the Eurobond investors would be the source of the repayment of their interest and capital”. He further highlighted the need to reexamine the government economic polices stating that the proclamation of the Eurobond success does not put an end to the under listed economic shortfalls.

  1. The policies surrounding the Forex market have been hazy and inconsistent with supplies from FDI and FPIs seriously constricted.
  2. Inflation has shot up close to 20% in the last 20 months leading to imported inflation in goods and consumables.
  3. Rising levels of Unemployment.
  4. Reduced market confidence and increased cost of government borrowing.

Olutoyin enthused that “Both the monetary authorities and fiscal authorities should focus on coordinated policies which will reflate and kick-start the economy by spending time on seeking lasting solutions, laying a foundation for a vibrant economy and to look inwards for real solutions to the current economic challenges”.



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