With its first foreign currency bond offering scheduled for June, Nigeria has the potential to raise as much as $30 billion, as stated by Patience Oniha, director-general of the Debt Management Office.
The estimated size of dollar assets in the nation’s local banking sector is $30 billion.
The issuing of foreign currency by the sovereign domestically is in line with efforts to stabilize the naira, which has been severely impacted by the lack of dollars.
The first Foreign currency bond, a short-to medium-term asset, is scheduled to launch in the second quarter of 2024.
Although they have not yet been named to the deal, the transaction advisers are expected to provide accurate revenue estimates.
It is assumed that a large number of Nigerians, both individuals and institutions, including banks and Nigerians living abroad, have dollars in their domiciliary accounts.
Individual Nigerians, institutions, and Nigerians living abroad who wish to invest are the target investors.
Similar to the first-ever eurobond issue in 2011, the first-ever forex bond is anticipated to facilitate the local issuing of comparable bonds by corporations and subnationals; this idea has already received preliminary approval from the nation’s top capital market regulator.
The transaction advisers will calculate the potential yield, which, according to her, will probably be below eurobond rates but still be enticing enough to draw in potential investors.
The bond will be fixed in the same currency that it was issued in, the director general affirmed. She also refuted previous rumors that the government intended to change people’s domiciliary accounts in local banks to local currency and made it clear that pension fund administrators may purchase bonds if their policies permit it.
Johnson Chukwu, CEO of Cowry Asset Management Limited, has commended the proposed agreement with the government for foreign exchange liquidity to pay maturing debt and prevent default.
He thinks that any estimated sum could be obtained by the government, but at great expense. Chukwu thinks that investors will factor in the possibility of default, as demonstrated in Ethiopia and Ghana.
The agreement may have an effect on the nation’s entire debt, which came to N97 trillion last year, as well as its debt servicing obligations.
The government will be responsible for another $1 billion in debt payment if it borrows $10 billion at this time, for a total debt service of N9.6 trillion.
Given that the N10 trillion debt service does not include the additional debt payment from the increased borrowings anticipated this year, this would place a heavy load on the government.
Chukwu also emphasized that depending on where the money is placed, there’s a chance that potential losses could surpass the anticipated returns.
In order to prevent a debt service to revenue ratio of more than 100%, he also emphasized the importance of cautious planning.
