Daily Blackouts Generate Nigeria Bank Dollar Debt: Africa Credit

Photographer: George Osodi/Bloomberg

A local farm worker puts diesel into a generator in Shonga, Nigeria. Close

A local farm worker puts diesel into a generator in Shonga, Nigeria.

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Photographer: George Osodi/Bloomberg

A local farm worker puts diesel into a generator in Shonga, Nigeria.

Nigeria’s drive to overcome a mismatch between demand for electricity and generating capacity is prompting the nation’s lenders to sell dollar bonds to finance power projects.

The government of President Goodluck Jonathan, which sold 15 state-owned power generation and distribution companies last year, is spending $3.5 billion to boost transmission capacity this year in Africa’s most populous nation by 50 percent from 4,000 megawatts, less than a 10th of South Africa’s full capacity. Funds will come from the sales and borrowing as he seeks to alleviate daily blackouts in the country of 170 million people, the continent’s biggest economy.

Nigeria’s banks are tapping Eurobond markets to be in a position to provide financing for projects including power, with Sterling Bank Plc seeking to raise dollars after Zenith Bank Plc (ZENITHBA), the nation’s second-biggest lender, sold $500 million of five-year notes on April 10. The yield on the security was 6.29 percent yesterday, compared with 5.07 percent in JPMorgan Chase & Co.’s Corporate EMBI Diversified Financial Sector Blended Yield index.

“Nigerian banks will become regular players in the Eurobond market in coming years,” Samir Gadio, an emerging-market strategist at Standard Bank Group Ltd.’s London unit, said in an e-mailed response to questions April 24. “They will need to refinance existing issues before they mature, but also to raise more funding for the financing of power, oil and gas and infrastructure projects.”

Strong Demand

The state’s disposal of its power assets last year attracted about $2.4 billion, with most of the financing arranged by local banks, Wale Shonibare, the managing director of investment banking at Lagos-based UBA Capital Plc, said in a Bloomberg TV Africa interview broadcast April 25.

Demand for Zenith’s bonds was more than double the amount on sale, the Lagos-based lender said in an e-mailed statement on April 17, without saying what the money will be used for. The issuance, arranged by Goldman Sachs Group Inc. and Citigroup Inc., is part of a $1 billion global medium-term note program. Zenith declined to comment beyond the statement.

Sterling Bank (STERLNBA) plans to sell a Eurobond in 2015 and will also start talks with investors to raise $200 million this year, Chief Financial Officer Abubakar Suleiman said by phone from Lagos on April 24.

“The amount for the Eurobond has not been determined,” he said. “It is intended to help the bank finance growth.”

‘Lending Spree’

Guaranty Trust Plc, Nigeria’s biggest bank, which raised $400 million in November for oil and gas investments out of a $1 billion bond program, has enough short-term dollar funding, according to Chief Executive Officer Segun Agbaje.

“If we see a long term funding need we’ll have to raise more funds,” he said in an April 9 interview.

Yields on Guaranty’s Eurobonds due November 2018 have dropped 16 basis points to 6.13 percent since they were sold. Fidelity Bank Plc’s $300 million of four-year Eurobonds have climbed 122 basis points to 8.36 percent since being issued last May.

“Nigerian banks don’t have significant excess or idle foreign currency funding partly due to regulations so when the lending opportunities come up, they tend to have to go to the market to raise funds,” Bunmi Asaolu, an analyst at FBN Capital Ltd., said by e-mail on April 15. “The risks are there because of foreign-exchange risk and question marks surrounding transmission and gas supply. This is why some banks have chosen not to participate in the ongoing lending spree.”

Lower Cost

The Central Bank of Nigeria increased cash-reserve requirements on deposits made by government ministries and agencies and state-owned companies to 75 percent from 50 percent last year and told lenders to lower fees and commissions to reduce costs to customers. The regulator raised requirements on private deposits to 15 percent from 12 percent on March 25 to reduce liquidity and support the naira.

“Loan-book growth has become an important objective for domestic banks in their bid to grow earnings,” Adelayo Alabi, an analyst at Lagos-based Greenwich Trust Ltd. said in an e-mailed response to questions, on April 15. “Dollar debt provides a lower-cost of funding than what is obtainable” locally.

Union Bank of Nigeria Plc, which was bailed out by the central bank five years ago during a debt crisis, has been selective with the power deals it funds, Chief Financial Officer Oyinkan Adewale said by phone April 25.

“We have to be very, very careful because we know everybody was rushing to finance power, that was the new kid on the block, but a lot of these assets people didn’t really know the quality of,” Adewale said. “While we have quite a bit of demand coming to us to finance power, we only participated in one or two deals.”

Expansion Plans

Yields on the government’s naira bonds due June 2019 have climbed 24 basis points, or 0.24 percentage point, to 13.25 percent this year. Nigeria’s naira gained 0.1 percent to 160.85 per dollar by 9:56 a.m. in Lagos for a decline this year of 0.3 percent.

“We will see a trickle of other banks coming to the market,” John Bates, a London-based emerging market corporate analyst at PineBridge Investments, which manages $74 billion, said in e-mailed comments on April 16. “One of the challenges for the Nigerian banks is raising long term funds which they can then on-lend to their corporate customers, many of which are hungry for finance.”

To contact the reporters on this story: Emele Onu in Lagos at eonu1@bloomberg.net; Chris Kay in Lagos at ckay5@bloomberg.net

To contact the editors responsible for this story: Vernon Wessels at vwessels@bloomberg.net Emily Bowers

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