FG Shelves $950m Eurobond Sale Over Unfavourable Pricing

By Derrick Bangura

Nigeria’s federal government has suspended plans to raise about $950 million in overseas bonds, as a result of unfavourable market conditions during the timeframe approved for the fundraising, the Minister of Finance, Budget, and National Planning, Mrs. Zainab Ahmed has said.

It also responded to the forecast by the International Monetary Fund (IMF) that the country could be spending 100 per cent of its revenues on debt servicing by 2026, saying the prediction was based on wrong parameters.

This is as the Debt Management Office (DMO) has listed two new Federal Government of Nigeria (FGN) savings bonds for subscription at N1,000 per unit.
Ahmed had in April disclosed that Nigeria planned to sell in May its second external debt this year to help plug fiscal deficits. The planned $950 million bond sale would account for the balance of $6.1 billion in overseas borrowings planned for 2021 after it raised the second tranche of $1.25 billion in March.

However, the minister, who spoke on the sidelines of Islamic Development Bank meetings in Egypt, was quoted by Bloomberg on Saturday as saying “we were not able to do that because the market pricing was not good and also the approval period for us has closed. She added that “the approval period was up to May 31, 2022; so, we are not going to be able to take that one anymore.”
Nigeria was one of the first sovereigns to tap the Eurobond market after the start in late February of Russia’s war on Ukraine, which stoked commodity prices and inflation just as the US Federal Reserve raised interest rates. Nigeria’s seven-year bond in March was priced to yield 8.375 per cent, compared to a similar maturity raised about eight months ago with a coupon of 6.125 per cent.
The federal government plans to curb borrowing costs this year by using the International Monetary Fund’s general allocation of reserves known as special drawing rights to fund projects, then reducing external borrowings, Ahmed said. It projects N17.3 trillion ($41.6 billion) budget spending this year, with forecast deficits of N7.35 trillion.

“What we are doing now is to plan on managing our situation such that we are not exposed to increased costs in 2022,” Ahmed said. “We are hoping that in 2023 things will be much better than what we are projecting in 2022.”
Analysts said Nigeria’s return to the market at a time when investors are wary of volatility across financial markets shows the urgent need for Nigeria’s government to narrow its budget deficit. The IMF forecasts the gap will widen to 6.4 per cent of gross domestic product this year from a pre-pandemic average of 4.3 per cent, due to the rising cost of fuel subsidies.
Borrowers have been on the sidelines since Russia’s invasion pushed up funding costs. Turkey was the second sovereign to announce an overseas bond sale in April.
Nigeria’s deficit is expected to widen to 6.4 per cent of gross domestic product this year from a pre-pandemic average of 4.3 per cent due to the rising cost of fuel subsidies, according to IMF forecasts.
Meanwhile, Ahmed has also disclosed that the recent forecasts by the IMF that the country could be spending 100 per cent of its revenues on debt servicing by 2026 was based on wrong parameters.
She argued that the organisation’s assumption was hinged on the prediction that the country’s revenues would remain stagnant, explaining that it had indeed been improving.
Ahmed stated that Nigeria was confident that it would beat this year’s non-oil revenue target based on collections made in the first three months of the year.

The Bretton Wood institution had raised concerns over Nigeria’s fiscal conditions, adding that the nation spends 89 per cent of its revenue on debt.
The IMF’s Resident Representative for Nigeria, Ari Aisen, who spoke while presenting the fund’s latest Sub-Saharan Africa Regional Economic Outlook report, also warned that with fuel subsidy payments averaging N500 billion monthly, total expenditure on subsidy could hit a record N6 trillion by the end of the year.
But Ahmed said on the sidelines of the IDB meetings in Egypt that the rise in non-oil revenues would help the country avoid the prediction by the IMF that debt service would swallow all of the country’s income by 2026.
“The IMF projection is predicated on the assumption that revenue levels will stay the same as they are right now up to 2026,” Ahmed said.
She argued that non-oil revenues were outperforming income from crude oil, adding that taxes collected last year even exceeded projections.
“In 2021, our non-oil revenues outperformed our budget by an aggregate of 15 per cent.

“In 2022, our first quarter shows that already, the company income tax and Value Added Tax (VAT) are slightly above the projected target,” she added.

FG Lists Two New FGN Savings Bonds for Subscription

Meanwhile, the DMO has listed two new FGN savings bonds for subscription at N1,000 per unit.
According to the DMO, the first one is a two-year savings bond maturing on June 15, 2024, at an interest rate of 8.20 per cent per annum.
The second is a three-year savings bond due maturing on June 15, 2025, at a 9.20 per cent per annum interest rate.
“Offer opens on Monday, June 6, and closes on Friday, June 10; settlement date is June 15.
“They are offered at N1,000 per unit, subject to a minimum subscription of N5000, and in multiples of N1000 thereafter, subject to a maximum subscription of N50 million.