Nigeria comfortably raised $1 billion in its return to the Eurobond market on Tuesday, taking advantage of a short period of relative calm in otherwise turbulent markets to issue both a long and shorter-dated bond.
The issue was four times oversubscribed, with just over $4 billion in bids, a source told Reuters - underscoring still buoyant investor appetite for scarce frontier African paper, despite a recent selloff in emerging market assets.
“We’re very happy that at this time, when the markets are exhibiting turbulence, we were able to (achieve) ... four times oversubscription,” Finance Minister Ngozi Okonjo-Iweala told a journalists’ conference call after the issue.
“The coupon shows confidence in the Nigerian economy,” she said, adding that the money would be spent on infrastructure.
Africa’s top oil producer issued a $500 million 5-year bond at a yield of 5.375 per cent and a $500 million 10-year bond with a yield of 6.625 per cent, according to IFR, a Thomson Reuters news and analysis service.
The 5-year paper received bids of $1.77 billion and the 10-year of $2.26 billion, the source said.
By comparison, Nigeria’s debut $500 million 10-year Eurobond, which it issued in 2011, received bids worth two and a half times the amount on offer.
The yield on the 10-year bond is less than the 7 per cent the West African country paid in 2011, but higher than what it could have paid if it had issued just a few months ago, analysts said.
“We saw a window of opportunity ... appetite for our paper was strong,” Okonjo Iweala said.
The 2021 bond traded at a 5.92 per cent yield on Tuesday but was 3.66 per cent at the start of the year.
A rise in US Treasury yields since late April and comments by US Federal Reserve chairman Ben Bernanke about tapering its bond-buying programme have pushed up yields on African Eurobonds by up to 300 basis points in some cases.
Most Eurobonds rallied this week. Nigeria decided to take advantage of the improved conditions ahead of the release of US non-farm payrolls on Friday, said Nicholas Samara, vice president in capital markets origination at Citi, one of the lead managers along with Deutsche Bank.
Strong non-farm payrolls could heighten fears of an end to the Fed’s quantitative easing.
Wednesday was also a no-go, he added, as it will be a busy trading day ahead of the July 4 holiday in the US. “It’s an opportunistic trade today that Nigeria, alongside other issuers, have done,” Samara said. “Today was an open window. Come Friday, if you have strong non-farm payrolls the next opportunity possibly could be September.”
Nigeria’s domestic debt was about 18 per cent of GDP in 2012 and external debt was 2.5 per cent of GDP, lower than its peers.
But investors remain wary of the country’s tendency to squander its oil windfall. The oil savings account had $9 billion in it last December. Okonjo-Iweala admitted it was now down to around $5 billion, but she said it was merely performing its function in helping cushion the against commodity shocks.
Inflation is in single digits and investors are optimistic about power sector reforms, seen as key to unlocking growth.
Samir Gadio, emerging markets strategist at Standard Bank, said the rally in emerging market Eurobonds in the past few days could have enough momentum to see yields fall further.
“That said, the government will still have to pay a higher external funding cost than what it could have secured a couple of months ago,” he said.