Eurobond Pushes Nigeria’s External Reserves To $40bn

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The successful issuance of $4 billion Eurobond by the federal government last week at the International Capital Market, ICM, has given the nation’s foreign reserves a significant boost to over $40 billion.

The reserves hovered around $36. 03 billion previous week.

With the $4 billion Eurobond settlement set for Thursday, this week (September 28, 2021), the nation’s external reserves will be sitting on a $40 billion mark, the highest point in the last five years.

According to Vanguard Public Finance, findings show that Nigeria had adopted the Eurobond option to shore up its foreign reserves with borrowing of $15.168 billion through Eurobonds and Diaspora Bonds in the last 10 years.

Data obtained from the Debt Management Office (DMO) indicates that the foray into the International Capital Market (ICM) in recent times started in 2011.

On January 28, 2011, the nation issued a $500 million Eurobond. It had a 10-year tenor and at that rate of 6.75 per cent per annum on a yield basis, with a maturity date of January 28, 2021. That Eurobond has been redeemed.

In 2013, the federal government returned to the ICM to issue a $300 million Eurobond, specifically on July 13, 2013. That bond had a tenor of 10 years, with a maturity date of July 12, 2023 and at a coupon rate of 6. 375 per cent per annum.

Eurobond Pushes Nigeria’s External Reserves To $40bn

It took another four years for the federal government to return to the international capital market to raise funds. It started with a $1.5 billion Eurobond, which had a 15-year tenor, 7. 875 % coupon rate per annum and a maturity date of February 15, 2032.

It returned to the ICM to raise another $300 million Diaspora Bond from Nigerians abroad, in order to cushion the effects of the recession back home in 2017.

The Diaspora bond which was issued on June 27, 2017, had a 5-years tenor, coupon rate of 5.625 % per annum with a maturity date of 2022.

Four months later, the federal government issued another $3 billion Eurobond. It was issued in two tranches. $1.5 billion was offered at a tenor of 10 years and a coupon rate of 5. 5 % per annum and a maturity date of November 28, 2027.

The second tranche of $1.5 billion had a 30-year tenor with a 7. 625 % coupon rate per annum and a maturity date of November 28, 2047.

In 2018 the federal government went to the ICM twice. It first raised $2.5 billion through issuance of Eurobond on February 23, 2018. It adopted two tranches of $1.25 each in the transaction.

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The first tranche of $1.25 billion had a tenor of 12 years, a coupon rate of 7.143 % per annum and a maturity date of February 23, 2030.

The second tranche had a tenor of 20 years, with 7.696 % coupon rate per annum and maturity date of February 23, 2038.

The federal government also issued a second Eurobond on November 21, the same year (2018), in three tranches.

The first tranche was a Eurobond of $1.11 billion with a tenor of seven years and coupon rate of 7.625 % per cent per annum with a maturity date of November 21, 2025.

The second tranche was $1 billion with a tenor of 12 years at 8.747 % coupon rate per annum and maturing on January 21, 2031.

The last tranche of $750 million was for 30 years and a 9.248 % coupon rate per annum and maturity date of 2049.

Benefits of Eurobond

The Director-General of the DMO, Ms. Patience Oniha, in addressing some of the concerns raised by Nigerians on the desirability or otherwise of the Eurobond, explained going to ICM to raise funds “showcases Nigeria in a positive light in the international financial markets where large pools of capital is available.”

According to her, it has enabled Nigerian banks meet regulatory requirements for them to access long-term, low-interests funds from the market.

Her words, “The sovereign Eurobonds serve as a benchmark on the back of which several local banks have issued Eurobonds.

“ Amongst them are Zenith Bank, Access Bank, UBA, FBN, Ecobank Nigeria and Fidelity Bank.

“This window opened by the sovereign bonds enabled these Nigerian Banks to raise Tier 2 Capital to meet regulatory requirements and enhanced their capacity to lend to, and, support local borrowers.”

She added that issuing Eurobonds has been a potent tool for building up Nigeria’s External Reserves and that a healthy level of External Reserves supports the Naira Exchange Rate and Nigeria’s sovereign rating.

According to her, “Raising funds externally through Eurobonds to finance Budget Deficits reduces the level of sovereign borrowing in the domestic markets.

“The benefits of this are many. It mitigates the risk of crowding out the private sector (more funds available at moderate rates for other borrowers in the domestic economy).”

The DMO boss added “the Eurobonds are also listed in Nigeria’s two (2) securities exchanges: The Nigerian Exchange Limited and FMDQ Securities Exchange Limited. This increases the size of these exchanges and diversity of instruments listed.”