Nigeria’s government successfully raised $900 million in its first domestic sale of dollar-denominated bonds, almost twice the $500 million it initially targeted. Local investors seized the opportunity to hedge against the ongoing naira devaluation by investing in the high-yield securities.
The five-year bonds offer a coupon rate of 9.75%, slightly higher than the 9.67% yield on similar Nigerian eurobonds. The sale was 180% oversubscribed, according to the Africa Finance Corp., the global coordinator of the bond issuance.
The bond sale is part of Nigeria’s larger plan to raise $2 billion through domestic dollar bonds to fill infrastructure financing gaps. With unfavorable conditions for eurobond sales, the government turned to the domestic market to support its funding needs.
Earlier in the year, President Bola Tinubu approved a $17.4 billion spending plan for 2024, which included a deficit of 9.8 trillion naira. A supplementary budget later increased the total spending to 35 trillion naira, prompting the need for additional borrowing from both domestic and external sources.
Economist Adetilewa Adebajo noted that investors were attracted by the high returns and protection against currency volatility, as the naira has depreciated by more than 50% in the past year. This week, the naira fell by 3.6% to 1,639 per dollar, its largest drop in three months, while yields on Nigeria’s 2029 eurobonds rose to 9.78%.
According to Samuel Sule, CEO of Renaissance Capital Africa, the bond sale will help bolster Nigeria’s foreign currency reserves and meet demand from businesses needing dollars. He expects the government may issue another similar bond within the next year due to its success as a funding source.
Credit: BNNBloomberg (Text Excluding Headline)
