Nigeria's proposed debt servicing modality using the Eurobond has been publicized as the economic team preside over the course.
Finance Minister, Kemi Adeosun
Nigeria is considering a new debt service provisioning of N361
billion ($1.2 billion) for the $1 billion (N305.1 billion) Eurobond
which was acclaimed to have been over-subscribed.
When consummated, the development will not only add to the
country’s debt stock, its current debt service provision at over N1.4
trillion will rise, and it will deepen the troubled debt-to-revenue
ratio which has been impeding the country’s ability to freely finance
growth projects.
Government had said its 15-year Eurobond offer was priced at 7.875
per cent, with a lump sum repayment of the principal ($1 billion) at the
due date – February 2032.
The investors had opted for a higher yield to cover their assessed
risks or devaluation in early negotiations, asking for a 7.5 per cent
for a 10-year period or eight per cent and above for a 15-year period,
due to foreign exchange crisis and other macroeconomic issues.
However, the aggregate cost for the deal at the offering rate may
not be less than N361 billion at the prevailing official exchange rate,
considering that investors would be paid in dollar, representing a
yearly average cost of about N24.1 billion ($79 million).
A popular economist who would not want his name in print said the
net proceeds of the Eurobond would naturally be less than the amount
quoted due to service charges incurred in the process, “but we would be debited with $1 billion.”
“If you factor in these costs, you begin to ask whether we
should have been here. It is irritating that in the midst of these
challenges, misappropriation, huge governance cost and outright
embezzlement of public fund still persist.
“The budget items of some ministries are clear fraud and these
have put the country on an unsustainable path. What is there to
celebrate about the Eurobond? Is it that we are now committing our young
generations, even the unborn, to poverty and immediate struggle?” the economist queried.
But the Minister of Finance, Mrs. Kemi Adeosun, in a statement, said: “Nigeria
is implementing an ambitious economic reform agenda designed to deliver
long-term sustainable growth and reduce reliance on oil and gas
revenues while reducing waste and improving the efficiency of government
expenditure.
“We are establishing the building blocks for long-term growth
and making the hard decisions that must be made to reset our economy
appropriately.”
The Director-General of Debt Management Office, Dr. Abraham Nwankwo, also said: “Nigeria is delighted to have successfully priced its third Eurobond issue.
The Eurobond is the latest step in a broader debt strategy designed
to significantly re-balance our debt profile towards longer term
financing and reduce the burden of interest on our annual budget.”
A director at Union Capital Markets Limited, Egie Akpata, said he
was sure that the country would raise the amount and predicted an
oversubscription earlier, but expressed worry on the pricing, which he
said would have been a lot lower if the fundamentals did not get this
bad.
“Eurobond is the easiest platform for international fund raising
for the country now, because there is no string attached, unlike the
International Monetary Fund and the World Bank.
“With the assurance that our daily oil earnings may be more or less
this amount, it is not a ‘back breaking’ deal. But considering the
exchange rate, local debts would be better off, as the total cost
incurred would be less,” he said.
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