By John Bates
Head of Fixed Income at Silk Invest.
The Nigerian government’s forthcoming 10 year $500mn eurobond has a green light for completion before year end. The only stone not yet overturned is pricing. In local Naira terms, 10 year risk currently yields 9.8%, but the new bond is going to be in US dollars and aimed at international investors.There are several considerations for the lead managers and investors alike. Not least the fact that in relative value terms, Ghana’s 2017 bond currently yields 5.9%. Other African eurobonds have also seen strong demand during 2010, with yields trending downwards.
With a deal size of $500mn, secondary market liquidity will not be great, but this will add to the rarity value. One can also expect strong demand from the local banks, even if the deal is priced tight.
Aside from the technical aspects to the new issue, fundamentals look favourable: following a well-timed Paris Club debt buy-back, public debt amounts to only 20% of GDP. The formal ratification of the Asset Management Company (AMCON), a state fund that was created to nurse distressed bank loans, is now complete and only further enhances the nation’s macro score card.
The recovery from assets from the country’s failed banks has been a resounding success. On the negative side inflationary pressure appears to have slipped somewhat, and remains relatively high at 13.5%, and reserves have depleted to c. $33bn with the Excess Crude Account (ECA) virtually gone.
All in all we are confident that the new issue will be exceptionally well received by the markets.
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