Nigeria May Issue More Eurobonds by 2012, Morgan Stanley Says

Nigeria, Africa’s biggest oil producer, may sell another set of Eurobonds by the end of 2012 to diversify its funding and to provide a liquid yield curve for international debt, Morgan Stanley said.

“If you look at it from a funding perspective, it is clear that they do not really have to tap the international markets, as the local bond market has the capacity to handle their funding needs,” Andrea Masai, a Johannesburg-based economist at Morgan Stanley, said in a phone interview today. “The motivation therefore appears to be one of diversification, but also the need to provide a liquid curve in offshore debt.”

Africa’s most populous nation sold $500 million in a debut Eurobond sale in January to give investors a “transparent and internationally observable benchmark,” Olusegun Aganga, the former finance minister, said Jan. 21.

The yield on the 6.75 percent debt due 2021 has fallen 70 basis points to 6.091 percent since its issue in January.

The notes have “traded exceptionally well” and “there is definitely appetite for Nigerian debt, given its improving macro fundamentals and liquid and tradable, fixed-income markets,” said Masai. “Its overall debt metrics allow it to issue more paper. One must remember that its external debt ratios are still at very low levels.”

Outstanding Debt

Nigeria’s had 4.5 trillion naira ($29.6 billion) in outstanding debt in 2010, or 15.6 percent of gross domestic product, Morgan Stanley said in its report, citing the Ministry of Finance. This may rise to 16.7 percent of GDP in 2012, a “comfortably low level,” they said. Nigeria’s external debt level is 2.4 percent of GDP and may rise no more than 3.8 percent by 2012, Morgan Stanley said.

Fitch Ratings may upgrade its “negative” outlook on Nigeria’s BB- assessment, the third-highest non-investment grade ranking, within the next 12 to 18 months, Morgan Stanley wrote in its report. Fitch lowered its outlook on Nigeria from “stable” on Oct. 22 due to concern that the nation was making withdrawals from the excess crude account, a windfall saved when the price of crude goes above the benchmark used for the country’s budget, and foreign-currency reserves dropped.

President Goodluck Jonathan, who was returned to power in April elections, slashed almost 500 billion naira off a budget adopted two months earlier, taking the final spending plan to 4.5 trillion naira. Nigeria’s Senate passed a bill last month creating a sovereign wealth fund to help the country save more of its oil revenue and funnel money into projects.

“With the sovereign wealth fund firmly in place now, the fiscal position outperforming official targets, and the recurrent-capital mix of public expenditures likely to improve going forward, we believe that Fitch’s concerns are being addressed,” said Masai.

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