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Expert explains Nigeria’s over-subscribed Eurobond - BUSINESSDAY
Nigeria has all the bad image but any time the highly vilified country floats a bond, investors come rushing, sometimes 400% over.
Now, a UNN-trained expert has tried to explain this. Joseph O. Eyakephovwan is the Managing Director/CEO of SAL Capital Limited, a financial advisory, project & infrastructure finance company located in Port Harcourt, Rivers State. He is a financial and investment adviser and an energy economist, who holds a Doctorate Degree (PhD) in Energy Economics, Management & Policy and a Master of Science (MSc) Degree in Finance and Banking.
He says Nigeria issued a returned $2.3 billion Eurobond recently from the international capital market. “The issue attracted $13 billion subscription representing a 453% over subscription. The $2.35 billion offer is divided into $1.25 billion. Note of a 10-year maturity (2036) and $1.10 billion Note of a 20-year maturity (2046).
“The proceeds of the Eurobond would be used to finance the 2025 budget deficit and to redeem 2025 maturing bond obligations according to the federal government of Nigeria but disadvantages includes exchange rate, and high debt servicing and refinancing cost.”
He went on: “The coupon rates of the 10 and 20-year bonds are 8.625% and 9.125%, respectively. Interests are usually paid annually or semi-annually while principal repayment is at maturity.
“Nigeria is expected to pay about $107.8 million annually or $1.078 billion in 10 years as interest cost while the 20 years bond at a coupon rate of 9.125% will cost Nigeria about $100.375 million annually and about $2.007.5 billion in 20 years. This excludes issuing and other incidental transaction costs.”
He said the bond would be admitted and traded in the Nigeria Exchange Limited, FMDQ Securities Limited, and the London Stock Exchange.
The oversubscription, according to him, could be as a result of the high yield, Nigeria economic reforms such as petroleum subsidy removal, and floating of the foreign exchange rate.
This implies that individuals who bought the bond at the primary market could trade it in the secondary market instead of holding to maturity. This is to create liquidity for the debt instruments.
He explained that bonds are long-term debt instruments issued by national, state, and municipal governments’ as well corporate organisations to finance capital projects.
Eurobonds are debts instruments issued by a country in a currency different from its own so as to attract international fund managers and global investors.
