Nigeria plans to launch its first international Naira-denominated bond within six months, dismissing concerns that the global financial crisis and the country’s exposure to falling oil prices will starve the $500m offer of buyers.
The government says the planned 10-year bond will lay the foundation for future bond issues by Nigerian companies and state governments by creating an international benchmark for sub-Saharan Africa’s second biggest capital market.
Many analysts believe, however, that the government may struggle to sell the bond at a rate it would find acceptable, given the current level of risk aversion among investors and Nigeria’s slumping earnings from its oil exports.
Abraham Nwankwo, the director-general of the Debt Management Office, pointed to bond issues by countries such as Mexico and Turkey in the past two months as evidence of persistent demand for emerging market debt.
“International investors appreciate the strengths of the Nigerian economy,” Mr Nwankwo told the FT. “The Nigerian economy is looking upwards – that’s the truth.”
The planned issue would be the first Nigerian government bond to trade on the Euroclear settlement system, which could encourage interest among foreign institutions reluctant to take bets on the country’s domestic bond market.
But potential investors are increasingly concerned about the ability of Umaru Yar’Adua, the president, to deepen economic reforms begun under Olusegun Obasanjo, his predecessor.
Mr Obasanjo’s team put Nigeria on the map for foreign investors by clearing more than $30bn of foreign debt and earning a double B minus credit rating. Mr Yar’Adua, who took over in May, 2007, can so far point to few headline-grabbing achievements. The president, who has a chronic kidney condition, began two weeks leave in Nigeria on Monday, renewing concerns over his health.
In another worrying sign for investors, falling oil prices have precipitated a 30 per cent decline in the value of the Naira against the dollar in the past two months and hit government revenues that drive growth in much of the country’s formal economy.
Some analysts say Nigeria’s government could perhaps raise finance more cheaply on the local debt market, where the 10-year bond is trading at about 12 per cent, but Mr Nwankwo said the government was determined to create a yield curve for international investors. “We are fully committed to the issue,” he said.
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