Director-General, Debt Management Office (DMO), Patience Oniha, has revealed plans by the Federal Government to raise $2.8 billion of debt offshore as part of its 2018 budget.
Despite the growing interest rate in the United States, the federal government has laid out plans to borrow and this could see the country paying a higher premium compared to its recent debt sale in February.
Recall that the Federal Government raised $2.5 billion through a dual Eurobond in February, selling a 12-year note at 7.1 percent to raise $1.25 billion and a 20-year tranche at 7.7 percent.
The February deal was the second international bond sale in less than three months after the debt office raised $3 billion through an offering of 10 and 30 year bonds in November, 2017.
The debt management office had in March revealed that it has concluded the third in the series of FGN Bond Auctions in its bid to raise funds for the implementation of the 2018 Budget.
According to the circular released on the agency’s website, the bonds offerings are in three tenures of 5, 7 and 10 years. This was intended to meet the different needs of various investor categories.
The Nigerian Government issues sovereign bonds monthly to support the local bond market, create a benchmark for corporate issuance, and fund its budget deficit.
The Federal Government had approved a three-year plan in 2016 to borrow more from abroad so that 40 percent of its loans would come from offshore in an attempt to lower borrowing costs. It currently has an estimated 23 percent of its debt from abroad, up from 16 percent when it approved the plan.
Oniha further revealed that the debt management office has sent a request for a proposal to banks for an international bond offering.
In her words:
“We will explore all options, keeping in mind our twin objectives of extending the tenure of the debt stock and lowering costs.”
She also said the DMO would tap the capital markets or concessionary loans from the World Bank and would consider funding options for the 2018 budget.
President Muhammadu Buhari had last week signed a record N9.12 trillion budget for 2018 into law with an overall budget deficit of N1.950 trillion which represents 1.74% of GDP.
The deficit of 1.64 trillion is to be financed mainly by foreign and domestic borrowings. Also, a total of N306 billion is expected from privatisation proceeds and N5 billion from the sale of other government property as part to finance the deficit.
Why the Eurobond raise now?
Eurobonds are bond raised in a currency other than that of the issuing nation, usually dollars. Nigeria has embarked on an increase in foreign borrowing in order to take advantage of lower interest rates, and reduce the crowding out effect on corporate issuers.
Global markets have been largely bullish, and the United States is raising interest rates. This would make the Nigerian bond less attractive also the agency could also be eager to embark on the bond exercise before political campaigns begin, which would leave most foreign investors watching cautiously.
The DMO was established on October 4, 2000, to centrally coordinate the management of Nigeria’s debt.