The odds are stacked against Nigeria as it looks to raise debt on the international markets for the first time in almost three years.
Finance Minister Kemi Adeosun is leading a team of officials that will meet bond investors at London’s five-star Corinthia Hotel on Tuesday at a time when Africa’s biggest economy is on the verge of a recession, oil production has fallen to about a three-decade low, and the budget deficit has swelled to a record.
Yields on Nigeria’s existing dollar debt are almost twice as high as those for Kazakhstan and Colombia, two other developing-nation oil producers, Bloomberg reported.
While they’re interested in plans to revive growth, investors said they will also demand to know when and how the central bank will end capital controls and a currency peg that has starved the country of dollars and slowed foreign investment to a trickle.
Tapping the offshore bond market this year is crucial for Nigeria to fund a budget of 6.1 trillion naira ($31 billion) meant to stimulate the economy, according to Rand Merchant Bank.
“They will be under immense scrutiny,” Nema Ramkhelawan-Bhana, an analyst at RMB, FirstRand Ltd.’s investment-banking unit, said from Johannesburg on June 2. The Eurobond market, which Nigeria may tap for as much as $1 billion, is “an avenue of financing they’re in desperate need of. It’s going to be a tough week for the finance ministry,” she said.
Nigeria has sold dollar bonds twice, the last time in mid-July 2013, when it raised $1 billion of five- and 10-year debt.
Yields on its $500 million of securities maturing in July 2023 fell one basis point to 7.52% in London on Monday. They’ve dropped 1.16 percentage points this year, meaning the bonds have gained 8.3%, compared with the average of 9.6% for high-yielding emerging-market sovereign dollar-debt tracked by Bloomberg.
Bond investors blame Nigeria’s rigid foreign-exchange regime for draining reserves, which have fallen to a more than 10-year low, and are hindering the economy, according to Bank of America Merrill Lynch.
