The Federal Government has said that the $500m Eurobond, which it issued to investors on Friday, is oversubscribed.

The Minister of Finance, Dr. Olusegun Agaga, said in a text message to our correspondent on Friday, “I have just gone through the order book with our advisers and can confirm that it is oversubscribed.

“The quality of the investors in the book is very high and we have a very good mix in terms of type and geography. Unfortunately, because it is private placement, I was not allowed to talk to them.”

Reuters also reported that the bond issued on Friday had a 7.0 per cent yield in a deal that was heavily oversubscribed, as appetite for high-yielding assets outweighed concern about Nigeria’s depleted oil savings.

According to the report, the successful issue by Nigeria, months ahead of elections, could reassure others on the continent of the strength of demand for African debt, convincing them to press ahead with similar but delayed plans.

“The offer has been oversubscribed 2.5 times to about $1.25bn,” a source close to the deal told Reuters.

The 10-year bond was priced in line with Nigeria’s 7.0 per cent guidance and would pay a 6.75 per cent coupon, with settlement on January 28, Thomson Reuters news service; IFR said.

The pricing means investors demanded a premium to West African peer Ghana, whose 8.5 per cent Eurobond due 2017 is currently yielding around 6.2 per cent.

While demand for high-yielding assets, the paucity of West African credit and the relatively low volume of the issue had been expected to fuel appetite, some potential investors were put off by the rapid depletion in Nigeria’s oil savings.

Fitch assigned the issue a ‘BB-’ rating on Friday, saying low debt ratios and robust growth played in Nigeria’s favour, but also noting concern about a decline in reserves last year despite a rise in oil prices and production.

“Reserves have risen around $1bn since the end of 2010, but in the absence of fundamental institutional reforms on the usage of oil revenues and savings, this gradual build-up is unlikely to be sustained,” Fitch said.

Standard & Poors has assigned a ‘B+’ long-term senior unsecured debt rating to the issue.

One leading fund manager who participated in Eurobond issues by Ghana and fellow African oil producer Gabon, at the end of 2006, said he was steering clear of Nigeria’s offering given concerns over the huge outflows from oil savings.

Nigeria’s excess crude account, into which it saves oil revenues above a benchmark price, has dwindled to less than $1bn from $20bn at the start of the current presidential term four years ago.

Foreign reserves, of which the ECA is a part, inched up month-by-month to $33.5bn by mid-January but are still down more than a quarter on year-ago levels.

punchng.com/Articl.aspx?theartic=Art20110122635453

I know a topic like this will attract low patronage judging by the fact that NL has been massively infiltrated by anti- Gej elements, but just for the records, The Bonds were OVER SUBSCRIBED!

@OP

Of course it will be oversubscribed, we are paying punitive yields! On a scale of 1 to 10, I give it a 3. I'll refer you to my post here:

https://www.nairaland.com/nigeria/topic-590109.32.html

Nigerians will never stop fooling others for political gains. About 2 threads are running here that it was shun by investors, now it has been over subscribed. Let them tell us again that this is fake news. Whatever they think may 29 will be the swearing in of Gej as president

Nigerians will never stop fooling others for political gains. About 2 threads are running here that it was shun by investors, now it has been over subscribed. Let them tell us again that this is fake news. Whatever they think may 29 will be the swearing in of Gej as president

@4play,
Sori but I cant visit your post on that thread so I dont quite get what u mean, but if u understand much about the goals of issuing this bond and economics in general(u sure sound like u do) U'll also understand that the first and major goal has been achieved by this oversubscription, thats one down and two to go.

Oversubscribed yes. The proceeds will surely be EMBEZZLED.

^^^ That remains 2 be seen isnt that so? Or perhaps u know something I dont?

wesley80:

@4play,
Sori but I cant visit your post on that thread so I dont quite get what u mean, but if u understand much about the goals of issuing this bond and economics in general(u sure sound like u do) U'll also understand that the first and major goal has been achieved by this oversubscription, thats one down and two to go.

Can you tell us what the three objectives are? Also, what rate did the bonds go for? Vis-a-vis the current trends in the global bonds market, what rate do you think Nigeria will be able to afford? For instance, do you think Nigeria should issue bonds at 10%?

Finally, why is Nigeria issuing bonds of $500 m when the ECA has depleted from $20 billion to $400 m in three years? Can you honestly state that this bond issue is not a smart way for certain Nigerian officials to get good returns for illegitimate wealth when Nigeria has junk bond status and guaranteed oil revenues?

wesley80:

^^^ That remains 2 be seen isnt that so? Or perhaps u know something I dont?

So what happened to the funds in the ECA and reserves? OBJ left $50 billion in the reserves and $30 billion in the excess crude account. It is now $30 billion in the reserves and $400m in the ECA.

@katsumoto,
Permit me 2 try answering yr questions since u seem 2 be well recognised around here as an economist, permit to spare some details.
The 3 obj from my understanding as a concerned observer were to
1) Boost investor confidence in Ngr, an oversubscription like we have here by major institutional investors is no doubt a vote of confidence esp 4 wld be investors
2) Act as a catalyst to stimulate borrowing by local industries in foreign capital mkts considering local high interest rate and scarcity of funds coupled with the unwillingness of banks to give out loans to some classes of investors -sure u're familiar with d bandwagon effect in economics.
3) To fund some developmental projects.
But this whole issue was abt the first 2 and d 3rd is just a bonus.
About the rates they went for, early estimates put it at 7% which isnt too high for a country with a B+ rating that is potentially volatile esp coming b4 a major election. Ghana 4 example rates abt 2 steps below Ngr accordhng to Fitch even with its relative stability. She issued its recent bond with the same tenure at 6.5%. So IMO, the rate is Ok vis a vis d current trend.
I'm sure d objectives stated earlier answers yr question abt y we r issuing a new bond and I cant state whether or not some smart politicians r up to no good but unlike u, I'm an optimist.
I'm not going 2 enter into a debate about the ECA and our reserves cos as a country we've done a whole lot of things wrongly, but I believe it is imperative that a country that has made mistakes moves forward.

I would see plausible reasons why this news might not be entirely accurate.

The Euronaira issue, even though enjoys the fact that the country maintains a competitive risk ratings will likely be viewed by analyst as a possible time bomb and thus returns offered might be effectively regarded as unsustainable.

Technically Soverign bonds are free of credit default owing to a country's ability to print out naira notes to sustain itself if need be, The bond also looks ridiculously cheap  in comparison to Ghana's sovereign issue, however, there are numerous political and economic risks surrounding this issue that will effectively determine how attractive it will compare to its peers.

One of those risks will be the inflation rate going forward.  Given that Nigeria has effectively depleted its excess crude reserves, and the government is ready to pump in more cash into the circulation judging by the AMCON bills alongside ongoing electoral process, it can only be reasonable to say that that Naira will effectively lose value over the years.  If the Naira loses value, payments received from the bond sale will make absolutely no sense. . . .why should a rational investor risk such?

Additionally, i would also infer that the country's dependence on oil and it's inability to diversify its cash flow sources does not bode too well. . .if macroeconomic events forces a global decline in oil prices, how sure are investors of the ability of the country to sustain its payments without resorting to printing spree?

@Violent,
U seem 2 have gotten it wrong cos from my understanding, the bond is denominated in Euros and so are its interests therefor its value wld be relatively unaffected by local infation or faltering naira value(which by d way I believe can both be checked by d CBN). A printing or spending spree while hurting d local economy wld leave d value of d interests unaffected.
The only worry that existed 4 investors was d ability to pay considering d depletion of our ECA, but that fear in itself is unfounded considering d prevailing high oil prices and positive forecast by reputable intnl bodies concerning future prices.

The interest payments are made in Euro, but the the principal repaid at maturity will have less purchasing power in case of inflation on the naira.

If this is priced in terms of a zero coupon bond where all payments are made at maturity, inevitable inflation in the short term poses real risk for investors.

^^^ Either u're still getting this wrong or I need to dust up some of my old notes, I'm thinking the former.
Would interests be paid in Euros and the principal in Naira terms? That wld be some cheap scam if thats what u're saying Aganga has done. U really think investors r that daft?

wesley80:

^^^ Either u're still getting this wrong or I need to dust up some of my old notes, I'm thinking the former.
Would interests be paid in Euros and the principal in Naira terms? That wld be some cheap scam if thats what u're saying Aganga has done. U really think investors r that daft?

My bad, I am the one who need to dust the notes.  i mixed everything up pretty badly

So why then is the country paying a bigger spread for the issue?

The ECA is different from the actual foreign reserves, and the latter should be a more accurate measure of a country's liquidity.

@violent,
Dont know who u're refering to as our peers but let me site 2 examples, Ghana(stable country & not too good economy) sold $500m bond at 6.5%, South Africa(stable country & good economy) sold a $2b bond at about 5%. Then consider Nigeria (Unstable country & not too good economy with elections looming) at what rate do u think our bond should go? 4%? Seriously now. IMO we got a bargain at 7%.