Nigeria Raises $2.2 Billion Through Eurobond Auction Amid Rising Concerns Over Debt Sustainability

Nigeria has successfully raised $2.2 billion through its latest Eurobond auction, a move aimed at addressing the country’s widening fiscal deficit.

This development marks Nigeria’s first return to the international capital markets since March 2022, signaling renewed efforts to bolster its strained finances in the face of persistent revenue shortfalls and growing public spending demands.

The auction saw the issuance of two bonds with varying tenors: a 6.5-year bond priced at 9.625%, which raised $700 million, and a larger 10-year bond priced at 10.375%, which secured $1.5 billion. These bonds were issued under the Regulation S/144A structure, making them accessible to U.S. and international investors. According to sources, the total subscription exceeded $9 billion, with only $2.2 billion ultimately allotted.

The proceeds from the bond sale are earmarked to support Nigeria’s 2024 budget, which has been stretched thin by disruptions in crude oil production, insufficient tax revenues, and challenges in diversifying the economy. The Debt Management Office (DMO) announced that the bonds will settle on December 9, 2024, and be listed on the London Stock Exchange’s Main Market.

In its official statement, the DMO described the auction as a significant success, noting that the bonds attracted a wide range of investors from regions such as the United Kingdom, North America, Europe, Asia, and the Middle East, alongside domestic participants.

“The transaction attracted a peak orderbook of more than $9.0 billion,” the statement read. “This underscores the strong support for the transaction across geography and investor class. With respect to investor class, demand came from a combination of fund managers, insurance and pension funds, hedge funds, banks, and other financial institutions.”

The oversubscription has been touted as a sign of investor confidence in Nigeria’s economic direction under President Bola Tinubu’s administration. Finance Minister Olawale Edun highlighted the issuance as evidence of growing trust in the government’s efforts to stabilize the economy and promote sustainable growth. Similarly, Central Bank Governor Olayemi Cardoso praised the outcome as a reflection of improved liquidity and market access for the country.

DMO Director-General Patience Oniha also celebrated the achievement, emphasizing strong investor demand, which was 4.18 times the offer size.

“The competitive pricing of the new 6.5-year and 10-year Notes reflects the confidence investors have in Nigeria’s sound macro-economic policy framework and prudent fiscal and monetary management,” she said.

High Yields Raise Concerns

Despite the oversubscription, the yields on the bonds—particularly the 10-year bond at 10.375%—have sparked concerns about Nigeria’s financial stability. These high yields suggest that investors are demanding significant risk premiums due to the country’s economic challenges and perceived credit risks. Analysts have noted that such high yields place the bonds near junk status, raising red flags about Nigeria’s ability to manage its escalating debt burden.

“The secured overnight financing rate in the US floats between 2.9% and 3.2%,” financial analyst, Kelvin Emmanuel, noted. “The SOFR in emerging markets is typically 6%. The country risk premium for the issuer default rating in Nigeria has added additional 3.6%. Borrowing money to finance deficits in the 2024 budget that’s less than 30-days to its end is not an achievement.”

Another analyst, Rufai, echoed similar sentiments, stating, “If you issue a 10-year Eurobond at a 10% interest rate during a time when global financial conditions are expected to improve, investors will likely buy in heavily, leading to oversubscription. This surge in demand doesn’t necessarily reflect confidence in your economy.”

The Eurobond issuance comes as Nigeria grapples with a burgeoning fiscal deficit and mounting public debt. The auction, managed by a consortium of international and domestic financial institutions including Citigroup, Goldman Sachs, JPMorgan Chase, and Standard Chartered, underscores the government’s continuous reliance on external borrowing to bridge funding gaps.

While the government views the oversubscription as a positive signal, critics caution that the high borrowing costs could exacerbate Nigeria’s long-term debt sustainability challenges. There is concern that with less than a month left in the fiscal year, the raised funds provide a short-term reprieve but do little to address the underlying structural issues that have strained Nigeria’s finances for years.