Economic Commentary - Eurobond Issuance: A Seven-day wonder?
- Yesterday, the FG completed its $2.86 billion (N856.8 billion) Eurobond issuance, taking the country’s total issuance for the year to $5.3 billion. The offer is made up of a $1.18 billion (7-Yr), $1 billion (12-Yr), and $750 million (30-Yr) priced at 7.625%, 8.75% and 9.25% respectively. As highlighted in our that scope for demand for Nigeria’s sovereign issuances exist given its favorable macroeconomic fundamentals, the issue was 3.2x over subscribed, though over-priced considering Nigeria’s improved fundamentals. Specifically, when compared to the February 2018 Eurobond issuance where the spread between Nigeria’s Eurobond rates and comparable US treasury was 427 bps and 456bps for the 12year and 20 year respectively, the recent issuance which portends a 563bps and 589bps spread for the Nigeria’s 12 year and 30 year appears expensive. For us, we think the higher pricing reflects ongoing EM risk off emanating from the recent spate of interest rate hike in the US (2%-2.25%) – that has resulted in higher US treasury yields (10-year: +70bps Ytd to 3.1%), the ongoing trade spat between US and China and the recent currency bouts faced by major EM economies earlier in the year.
- In this report, we delineate the impact of the Eurobond issuance on FX reserves, FG’s fiscal outlay and its attendant impact on fixed income yields over the rest of the year.
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