Buyers Look Past the Naira Fix as Nigeria Issues Eurobondby and
Government sold $1 billion of 15-year bonds at below 8 percent
Yield falls on first day of trading by almost 5 basis points
Investors may be fretting about Nigeria’s naira dilemma, but they’re still buying the country’s dollar debt.
Africa’s most-populous nation returned to international capital markets for the first time in almost four years Thursday, selling $1 billion of 15-year bonds yielding 7.875 percent, below the initial guidance of about 8.5 percent. Investors placed more than $7.8 billion of bids, according to a statement from the finance ministry.
At marketing meetings in London, Los Angeles, Boston and New York over the past week, some investors were left frustrated by Nigeria’s lack of clarity on the naira, which they believe is overvalued even after the central bank removed a currency peg in June. Since then, the regulator has kept a tight grip on the exchange rate through trading restrictions. Still, the offer was sweet enough for investors such as Aberdeen Asset Management Plc, which thinks an inevitable devaluation will help spark economic growth in the West African country.
“If they ever get around to allowing the currency to adjust further, this should be supportive for risk premiums,” said Kevin Daly, a London-based portfolio manager at Aberdeen, which oversees about $11 billion of developing-nation assets. “There is still a bit of value there, it’s not screaming cheap, everybody knows about the currency but the economy is set to rebound, oil is up, there is some positive news on the horizon.”
The yield on the notes due in February 2032 fell almost 5 basis points to 7.83 percent by 9:03 a.m. on Friday in Lagos, the commercial capital. Citigroup Inc. and Standard Chartered Plc managed the sale. The yield on Nigeria’s $500 million of bonds due in July 2023 declined for a sixth day, by 1 basis point, to 6.53 percent. It’s fallen almost 40 basis points since the investor meetings began on Feb. 3 in London.
Nigeria is struggling to emerge from a recession as it grapples with falling oil revenues and a crippling shortage of foreign exchange. The roadshow delegation, led by Finance Minister Kemi Adeosun and central bank Governor Godwin Emefiele, was short on detail about “fine-tuning the foreign-exchange system,” according to Daly.
The naira black-market rate fell to a record 500 per dollar last week, almost 40 percent weaker than the official one of 315.
Nigeria would have got a lower yield if investors thought the naira was fairly valued, said Neville Mandimika and Celeste Fauconnier, analysts at FirstRand Ltd.’s Johannesburg-based Rand Merchant Bank unit, in a note Friday. The bond will underperform those of other oil producers in the region, including Gabon, unless Nigeria overhauls its foreign-exchange regime, they said.
When Nigeria last turned to international capital markets in July 2013, oil, its main export, was at about $110 a barrel and the economy was expanding more than 5 percent annually. Crude prices have since halved and gross domestic product contracted in 2016 for the first time in a quarter century, according to the International Monetary Fund.
Buoyed by risk-on sentiment, issuers from developing nations have raised more than $73 billion in dollar- and euro-denominated bond sales this year, the best start to a year on record, according to data compiled by Bloomberg. Latvia sold 650 million euros ($692 million) in 10-year and 30-year notes on Thursday, while Tunisia is marketing a seven-year euro-denominated bond.