Nigeria to raise $3.5bn from foreign loans, eurobonds

Nigeria plans to raise $3.5 billion in foreign loans from the World Bank and international debt markets to help fund its 2017 budget deficit.

Budget Office Director General, Ben Akabueze said $2 billion of the foreign borrowings would come from concessionary loans with the balance of $1.5 billion from the Euro bond market. $4 billion will be raised from the local debt market. Akabueze said Nigeria has a shortfall of $7.5 billion for its 2017 budget expenditure. The country is in its second-year of recession due to low oil prices which has slashed government revenues and hit the naira.

Domestic Economy:

Reports from the Budget Office indicate that Nigeria plans to raise $3.5 billion (c.1.068 trillion) and $4 billion (c.1.220 trillion) in foreign and domestic loans to fund the 2017 budget which has an estimated deficit of 2.21 trillion (c.2.2% of GDP). Breaking down the foreign borrowing, we see that $2bn of the planned borrowing would come from concessionary loans while the balance of $1.5 billion would be funded through Eurobonds. We recall that to fund 2016 capital expenditure, Nigeria raised $1.5bn in Eurobonds in Q1’17 at a weighted average yield of 7.75% amidst strong investor interest (6.8x oversubscribed). With yields on Nigeria’s Eurobonds falling in recent months (7.88% FGN FEB 2032 down c.100bps from issue), coupled with an improved outlook on oil earnings and foreign exchange liquidity at the NAFEX window, we anticipate strong investor demand for Nigeria’s Eurobonds.

Coming off three consecutive sessions of modest gains, momentum slowed on the Nigerian bourse at week close (NSE ASI up 4bps) as persistent profit taking across Consumer Goods names depressed gains across other key sectors. The ASI was however down 28bps w/w largely due to the broad market profit-taking at week open. Whilst we note the emergence of profit taking on select stocks during the week, overall sentiment in the market was bullish — largely positive market breadth. At week close however, profit taking emerged once again, with d/d gains slowing to 4bps.
Fixed Income:

After opening the week mixed, the bills market turned bearish on Tuesday on the back of pressured system liquidity and higher than expected inflation reading for April. At mid-week, the Central bank of Nigeria (CBN) conducted a Primary Market Auction for bills offering and selling 111 billion at respective stop rates of 13.50%, 17.1490% and 18.70% — lower than secondary market levels. Bearish trading persisted as CBN mop up dampened buying sentiment. However, some buying interest resurfaced at week close as yields declined across the space. Meanwhile, the bond market opened the week slightly bullish before reversing trend amidst the April inflation figure and ahead of next week’s Monetary Policy Committee (MPC) meeting.