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IFC Debut Nigerian Bond Sale Garners Demand Twice Offered

Feb. 6 (Bloomberg) -- The International Finance Corp. boosted the first sale of naira-denominated bonds by a foreign issuer as a rally in the debt of Africa’s biggest oil producer spurred orders for twice the amount initially offered.

The World Bank unit raised 12 billion naira ($76.3 million), increasing the amount from 8 billion naira after orders came in at 20 billion naira, Jingdong Hua, vice-president and treasurer at the IFC, said in a phone interview from Washington yesterday. The “Naija” bonds, which will be listed on the Nigerian Stock Exchange and mature in February 2018, were sold with a 10.2 percent coupon, he said.

Nigeria’s bond yields have dropped to record lows as JPMorgan Chase & Co., the world’s biggest underwriter of emerging-market debt, added the securities to its benchmark GBI-EM index in October. Barclays Plc will add Nigerian debt to its local-currency government bond index next month. The bonds are the first in naira from a non-resident issuer, the IFC said.

The bond will pave the way for international issuers to sell in Nigerian currency, Hua said. “The market is feeling hot because it’s being included in the JPMorgan and Barclays indexes,” he said.

Yields on Nigerian government bonds maturing in January 2022 have fallen 105 basis points, or 1.05 percentage point, this year to 10.93 percent, according to today’s data compiled on the Financial Markets Dealers Association website. The extra yield investors demand on Nigeria’s dollar debt due in January 2021 rather than similar-maturity South African dollar bonds has narrowed 55 basis points this year to 53.

Upside

“Nigeria has seen a lot of interest,” Stuart Culverhouse, chief economist at investment bank Exotix Ltd., said in a phone interview from London yesterday. “The lower-hanging fruit around the trade has probably evaporated somewhat, but I think there is some attractive upside left.”

All of the buyers for IFC notes were Nigerian pension funds, asset managers and banks, according to its statement.

The Central Bank of Nigeria led by Governor Lamido Sanusi left the benchmark interest rate unchanged at a record-high 12 percent for an eighth consecutive meeting on Jan. 21. While inflation eased to 12 percent in December, it’s still above the bank’s goal of below 10 percent.

The naira, which advanced 3.9 percent last year against the dollar and is the best-performing currency in Africa, is being supported in part by portfolio inflows, Sanusi said after the meeting. Short-term inflows are less than 20 percent of reserves, he said in a Jan. 25 interview.

The currency of Africa’s most populous nation fell for the first time in three days, slipping less than 0.1 percent to 157.25 per dollar at 4:16 p.m. in Lagos, the commercial capital.

Africa Debt

“The central bank is likely to cut interest rates this year in the first half and that should give stimulus to yield compression,” Culverhouse at Exotix said.

Chapel Hill Advisory Partners Ltd. in Lagos and Standard Chartered Plc were the lead managers of the IFC bond sale.

The lender has a committed portfolio of $1.1 billion in Nigeria, it’s largest on the continent and eighth-biggest globally. The IFC announced in May a pan-African medium-term bond program, which focuses on countries including Botswana, Kenya, South Africa, Uganda and Zambia. The so-called Naija bonds aren’t part of that program.

The IFC is planning to issue another one or two African local-currency bonds this year, Hua said. “We are working very hard to promote local-currency lending.”

The Washington-based lender’s investments in sub-Saharan Africa have tripled since 2006, reaching $4 billion last year.

To contact the reporter on this story: Chris Kay in Abuja at ckay5@bloomberg.net

To contact the editors responsible for this story: Gavin Serkin at gserkin@bloomberg.net; Vernon Wessels at vwessels@bloomberg.net

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