Nigeria's $500 Million Eurobond to Yield More Than Ghana's, JPMorgan Says

Nigeria $500 million debut international bond, to be sold this week, will probably yield more than Ghana’s dollar debt because of political risks and fiscal deterioration, JPMorgan Chase & Co. analysts said.

Africa’s most populous nation and biggest oil producer will probably pay a yield ranging from 6.90 percent and 7.70 percent on its 10-year bonds, compared with 6.2 percent on Ghana’s $750 million of debt due 2017, analysts including Johannesburg-based Giulia Pellegrini wrote in an e-mailed note dated Jan. 18.

“Recent experience in sub-Saharan and North Africa has increased political risks in the minds of investors who will likely demand some additional compensation for political uncertainty in the run-up to elections,” they said.

Ivory Coast missed an interest payment Dec. 31 on its $2.3 billion of Eurobonds amid a political standoff over disputed results of the Nov. 28 election between incumbent Laurent Gbagbo, who refuses to step down, and internationally backed winner Alassane Ouattara. Tunisia had its bond ratings downgraded to the lowest investment-grade rating by Moody’s Investors Service after the violent ouster of the North African country’s ruler, Zine El Abidine Ben Ali.

Nigeria is rated B+ by Standard and Poor’s, four levels below investment grade, while Ghana is rated one level lower at B. The country should pay more than Ghana because its debt will carry a longer maturity and as its fiscal balance deteriorated before the presidential election scheduled for April 9, the analysts said.

Budget Deficit

President Goodluck Jonathan in December proposed a 2011 budget of 4.23 trillion naira ($28 billion), 19 percent less than what was approved for 2010. The budget will produce a deficit equal to 3.62 percent of gross domestic product, in keeping with the administration’s promise to narrow it from 6 percent in 2010.

“We see a high probability that Jonathan will continue as president after the elections and so do not place as large a political risk premium as we might if there was more uncertainty around this,” the analysts said.

Nigerian officials have been meeting investors in London and the U.S. to market the bond. It plans to sell the debt on Jan. 21, Miji Amidu, deputy director of the country’s Debt Management Office, said in an interview in London today.

The country, which has sub-Saharan Africa’s second-largest economy after South Africa, plans to use the Eurobond as a benchmark for local companies to price debt and fund development projects, Finance Minister Olusegun Aganga said in September.

The country appointed Citigroup Inc. and Deutsche Bank AG to manage the bond sale, helped by Barclays Capital and FBN Capital Ltd.

To contact the reporter on this story: Jason Webb in London at jwebb25@bloomberg.net.

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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