Mrs. Kemi Adeosun, Minister of Finance |
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 told journalists that 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?”
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,” Akpata said.
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