Nigeria appoints transaction advisers for a Eurobond issuance

Nigeria has taken a significant step in the international capital market by appointing 8 transaction advisers for a Eurobond issuance, aimed at financing the 2021 Appropriation Act. This move is expected to have implications on the naira, as discussed by Egie Akpata, Director at UCML Capital, in an interview with CNBC Africa. In terms of timing, Akpata highlighted that the issuance of the Eurobond has been long-awaited and is likely to happen towards the end of September. The government aims to keep the tenors as long as possible, potentially up to 30 years, with a target issuance of around $6.2 billion. However, the actual amount may be lower due to expected funds from the International Monetary Fund (IMF), estimated at around $3 billion. This injection of funds would boost reserves and support the naira in the short term. The conversation further delved into the impact of the Eurobond issuance on existing debts and other financial commitments. Akpata suggested that with an interest rate of 7 to 8.5 percent, the Eurobond is the most expensive form of financing available to the government. Considering the cost implications, he proposed that the government may not issue the entire $6.2 billion at once to prevent oversaturation of the market, especially since existing Eurobonds are already trading at lower prices. When considering the utilization of funds generated from the Eurobond, Akpata emphasized that the primary focus would be on funding the budget, particularly overhead costs and payroll expenses. Contrary to expectations, the funds are not earmarked for infrastructural projects or investments like the planned 15 trillion infrastructure company or NNPC's acquisition of a 20% stake in the Dangote Refinery. These projects, while significant, rely heavily on government credit guarantees and may strain federal revenues in the future. The discussion also touched upon the implications of investing $1.4 billion in refinery repairs amidst foreign exchange challenges. Akpata raised concerns about the funding sources for these projects, especially if they rely on future revenues from entities like NNPC. Any diversion of expected revenues could impact the government's financial obligations, particularly in a time of dwindling revenues due to petrol subsidies. In essence, while Nigeria's Eurobond issuance signals a move towards securing international financing, the economic impact and long-term sustainability of such ventures remain a point of contention. As the government navigates through various projects and financing options, it becomes imperative to assess the implications on revenue streams and debt obligations to ensure a stable financial future for the country.