FG to raise N110bn in bonds next week

The Debt Management Office (DMO) disclosed yesterday that the federal government will auction N110 billion ($360 million) in local currency bonds by next Wednesday.

This new sale will be its second debt auction of the year, as it would issue N45 billion of bonds maturing in 2021, N20 billion of 2026 paper, and N45 billion of bonds due in 2036, using the Dutch auction system.

Settlement for the bonds is expected on the following day. The bonds on offer are reopening of previous issues.

Africa’s top crude producer and biggest economy sell sovereign bonds monthly to support the local debt market, create a benchmark for corporates and to fund its budget deficit.

Earlier this year, the Nigerian government has raised N140 billion of local-currency bonds maturing in 2021. However, data on the DMO website also showed that the government will equally auction N85 billion to N105 billion in debt maturing in 2026.

According to the calendar, the debt office will also sell N45 billion to N55 billion in bonds maturing in 2027 and N100 billion to N130 billion to mature in 2036.

The calendar also showed that the 2027 bond will be a new issue in March while the rest will re-open previously issued debt, starting after January 18.

The Nigerian government had proposed a budget deficit of N2.36 billion for 2017, hoping to fund it by borrowing N1.254 trillion domestically and N1.067 trillion abroad.

While presenting the proposed 2017 budget estimates to a joint session of the National Assembly in December 2016, President Muhammadu Buhari had confirmed the planned borrowing of N1.254 trillion from the domestic market.

Meanwhile, the National Assembly has approved the government’s request to sell a $1 billion Eurobond to help the country finance its budget deficit, the senate spokesman said on Wednesday.

The largest economy in Africa is suffering its first recession in 25 years and needs to find money to make up for the shortfall in its budget. Its revenues have plunged along with global oil prices and militant attacks in its crude-producing heartland, the Niger Delta.

Finance Minister Kemi Adeosun, Central Bank Governor Godwin Emefiele, and other senior government officials have been meeting investors this week in London and the United States on a roadshow to issue the bond with a 15-year maturity.

Adeosun said in October that Africa’s biggest economy had commitments for half the amount it wanted to raise from the Eurobond, to be issued in dollars.

“The only request for approval from the executive was … for the issuance of $1 billion Eurobond … for the funding of the 2016 budget deficit, and we immediately granted the approval,” Senate spokesman Aliyu Sabi Abdullahi said.

Low oil prices have triggered chronic dollar shortages in the economy and battered the naira, which lost a third of its official value last year and is now trading at a 39 percent discount on the black market.

A source with knowledge of the investor meetings, organized by Citigroup and Standard Chartered Bank, told Reuters that oil production and currency were the two main issues investors were considering in pricing the bond this week.

Investors also asked about the continuity of government policies in the absence of President Muhammadu Buhari, who is in Britain on medical leave.

“The real concern is oil production and FX. Will there be a further devaluation this year?” the source said, adding that investors queuing for the dollar bond were looking at a potential yield above 7 percent.

Senate spokesman Abdullahi said the government wanted to use part of the Eurobond proceeds to finance two rail projects. The source added that recurrent expenditure would also be funded from the bond.

The government has laid out plans to spend a record 6.86 trillion naira ($22.5 billion) to help pull Nigeria out of recession in a draft 2017 budget sent to parliament for approval. It planned to spend 6.06 trillion naira last year but struggled to fund it.

The government has set out a $30 billion overseas borrowing plan to finance planned infrastructure projects until 2018, but analysts are skeptical whether it would be able to raise the funds