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Nigeria’s debt mountain grows

Nigeria is looking to raise significant capital from its domestic markets as part of a wider financing plan. Despite the high levels of debt, it is unlikely the sovereign will be over-leveraged, and the depth of the country’s local debt markets mean there will likely be demand for the issuances.

Apr 6, 2016 // 8:18AM

Nigeria plans to raise between NGN274bn and NGN365bn (from US$1.38bn to US$1.83bn) through bond issuances in its local debt market in the second quarter of this year. The bonds will have tenors from 5 to 20 years.

The country issues local debt monthly to support the local bond market and service its budget deficit. It plans to issue NGN900bn locally in 2016 to meet the requirements of the latter.

The fall of the naira against the dollar means servicing local debt is more manageable. Adebajo stated that it made sense to substitute planned dollar bonds for local debt. The naira currently stands at 199.085 to the dollar at official rates.

It is unlikely that the country’s markets will become overly saturated in government debt. Adebajo noted that the country has a very deep local market, adding that there is a fair amount of liquidity in the pensions markets and amongst non-bank lenders.

The country’s Debt Management Office (DMO) will issue around NGN15bn to NGN25bn of 5 year notes, roughly NGN35bn to NGN45bn of 10 year paper and about NGN45bn to NGN55bn worth of bonds with a 20 year tenor in April.

The DMO will also raise between NGN10bn and NGN20bn of 5 year bonds, circa NGN35bn to NGN45bn of 10 year and around NGN45bn to NGN55bn of 20 year notes in May and June.

Large domestic issuances allow the government to limit the effects of currency volatility. “Nigeria has to explore various options for financing, particularly with the pressures from foreign currencies,” said Ade Adebajo, Head of Sub-Saharan Africa at UBS.

Adebajo added that the risk of the sovereign becoming over-leveraged with debt was unlikely, noting that the debt to GDP ratio was relatively reasonable, especially when factoring in the split between local and foreign currency; total debt is near US$60bn. 

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