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Last Friday, Nigeria made a successful debut at the
international bond market with the 10 year $500 million Eurobond massive
subscription. The issue was 2.5 per cent oversubscribed, translating to about
$1.25 billion. This is coming after initial apprehension about the
attractiveness of the bond on the back of mismanagement of huge income from oil
over the last one year.
In an interview before the deal closed that day, the finance
minister, Olusegun Aganga, said that he had spoken with over 40 investors and
the response to the bond had been overwhelmingly assuring. Mr. Aganga dismissed
reports that some investors had doubts about the viability of the issue. The
report suggested that the alleged mismanagement of Nigeria’s Excess Crude
Account (ECA) had caused potential investors to shun the country’s first bond
issue.
Mr. Aganga, who was in New York as part of the road show to market
the bond, said that the Excess Crude Account barely featured in the questions
the investors were asking. “There is absolutely no correlation between the
Excess Crude Account and what we have set out to achieve with the bond,” he
said. “In reality, 42 per cent of that goes into investment in power such as
the NIPP project which has been allocated N8 billion.”
Excess Crude Account
He said that the Excesss Crude Account was a necessity for
states to invest in major capital projects but refused to comment on
allegations that many states had not remitted the money accordingly.
“The investors were far more interested in economic and other
fiscal factors. They were fairly consistent in their questions which were
mostly about political stability, exchange rates, the budget, levels of
production and the quality of our loan book.”
He said that modern investors were extremely sophisticated and
Nigeria represented a very attractive opportunity for those looking for healthy
diversity in their portfolios.
The finance minister added that a large number showed interest
in the Euro Bond.
“However it is not just anybody with money that will be able to
invest. We need to vet each investor’s suitability as well.”
A highly elated Aganga, after the close of the book, said the
issue was a major milestone for Nigeria. “More remarkable is the exceptional
quality and diversity of investors from 18 countries spanning Europe, the US,
Asia and Africa.
Investors are impressed by Nigeria’s credit story and were very
keen to participate in the offering.”
Mr Aganga said Nigerian corporate can now more easily access
well-priced long term financing from the international capital markets to fund
economic opportunities such as infrastructural development.
“We now have a transparent and internationally observable
benchmark against which international investors can accurately price risk. My
expectation is for an increase in capital inflows and FDI (foreign direct
investment) into the economy.”
The accomplishment of the bond may not necessarily translate to
much unless local corporate are able to latch on to the success recorded.
“We will commence the process of educating Nigerians on the
benefits of this bond. It is a very good thing,” the minister said in a text
message.
William Wallace, the Africa Editor of the Financial Times said
the massive investor interest in Africa has rubbed-off well on Nigeria.
“Some of the world’s fastest growing economies are on the
continent, which looks set to grow in coming years at double or more what the
developed world is. Then there is a lack of supply of African sovereign debt.
Nigeria as the second largest economy is obviously going to attract interest.”
Fiscal prudence
Mr. Wallace said current mismanagement may be due to the
elections and that fiscal prudence will improve after April. “Nigeria’s debt
profile is still far more favourable than it was a few years ago even if both
domestic and external debt has been on the rise again.”
Standard Poor’s Ratings Services on Tuesday assigned its
‘B+’ long-term senior unsecured debt rating to the bond. At the same time,
SP assigned a recovery rating of ‘4′ to the proposed bond, indicating its
expectation of average (30 per cent to 50 per cent) recovery in the event of a
payment default.
According to SP, the ratings are also constrained by a low
level of development and high dependence on the oil sector.
“Furthermore, we see residual risks in Nigeria’s financial
sector, although the Central Bank has addressed solvency and liquidity problems
in the banking sector,” it said.
SP notes that even with mismanagement, Nigeria’s oil
revenues are such, with the price of oil rising, that over the 10 year period
the country will always be able to pay.
