DMO Engenders Confidence with Eurobond Success


Abimbola Johnson writes that the success of Nigeria’s $1bn Eurobond sale was a reaffirmation of investors’ confidence in the country’s economy


It is no longer news that the Nigerian economy entered recession last year. Also, it is no longer news that the federal government is working assiduously to ensure the economy recovers this year. However, what is news is that contrary to the thinking of pessimists, investors are more bullish on the future prospects of the economy given the determination of the federal government to ensure that it recovers fully and impacts positively on the lives of the citizenry.

    Having realized that the economy is going into recession due to externalities that are mostly beyond its control, the federal government commenced initiatives that would engender its earnest recovery.

Faced with dwindling revenue as a result of the decline in the price of crude oil, the federal government had to resort to borrowings to part finance the economic diversification programme.

Shifting focus from crude oil as the mainstay of the economy, it is believed, would be the right way to build a sustainable economic base. This is why the government has come up with various programmes that will make agriculture attractive to invest in. Also, attention is being paid in the exploration of mineral resources to boost the revenue of the government. Most of all, the government is committed to the rehabilitation of the decayed infrastructure, a move that is expected to impact positively on corporate organisations. These are policies that if well-funded and implemented have the capability to turn the economy around. It is from this perspective that one can begin to appreciate government’s decision to enhance its financial position by exploring the immense opportunities in the international capital markets.

    As a result, the idea of the $1 billion Eurobond came. Contrary to apprehensions that investors may shun the portfolio; it got global endorsement, and by extension that of the federal government’s economic recovery initiatives.

    Specifically, stakeholders had envisaged that the Eurobond issuance will meet brick wall due, mainly, to the country’s foreign exchange policy which has seen the Central Bank of Nigeria (CBN) control the exchange regime. According to some of the stakeholders and international financial market analysts, government’s forex policy regime will adversely impact on the fortunes of the Eurobond.

But that did not happen when last week,  the bond  750 per cent oversubscribed, underscoring a buoyant investor appetite for scarce frontier African paper, despite a recent sell off in emerging market assets. The Global medium term Note programme of $1000, 000,000 is due to mature in 2032

 The Debt Management Office (DMO) defied all known predictions by international financial and capital market analysts to prove that Nigeria’s economy remains resilient and robust in the international capital market during the issuance of the bond. Nigeria issued $1billion 15-year bond at a 7.875 coupon at a most turbulent time of her economy.

    This feat proves unambiguously the resilience of the Nigerian economy and strength, particularly in terms of effective bullish public debt management record.

 This is the first time Nigeria is issuing a $1billion Eurobond in a single tranche. In 2013 the federal government issued a $1 billion Eurobond but in two tranches of $500m each for five and 10 years maturity each. 2011 was the debut outing of $500m with maturity period of 10 years.

     The federal government will take advantage of this success to reflate an economy in recession and the otherwise turbulent market. Comparatively, Egypt, with a higher credit rating issued a  10-year Eurobond at 7.5 per cent compared to Nigeria’s 15-year 7.8 per cent. It shows that Nigeria has a stronger performance in view of the longer maturity tenor.

    The Ministry   of Finance averred that the success of the bond issuance was clearly a sign of renewed confidence in the economy which has been hurt by the slump in crude oil prices.     The notes represent the country’s third Eurobond issuance, following issuances in 2011 and 2013.

     The notes were approximately eight times oversubscribed with orders in excess of $7.8 billion compared to a pre-issuance target of $1 billion, demonstrating strong market appetite for Nigeria.

    “This is despite continued volatility in emerging and frontier markets and it shows confidence by the international investment community in Nigeria’s economic reform agenda. The offering attracted significant interest from leading global institutional investors. The notes will be admitted to the official list of the UK Listing Authority and available to trade on the London Stock Exchange’s regulated market,” the Ministry explained.

    But a most glaring fact is that foreign investors are seeing what domestic investors may overlook which is that the Nigerian economy has very bright prospects. Hence, the Eurobond was oversubscribed despite rating downgrade from “B+” to “B” by S&P, a global rating agency in  third quarter of 2016 and a recent downgrade by Fitch another rating agency ( long-term foreign and local currency issuer rating) to “B+” with a negative outlook.

    At 7.9 per cent yield, it is believed that a stable outlook for crude oil prices and the considerable gains recorded against militancy in the Delta region, which pushed back output level to 1.9mbpd from 1.6mbpd, may have buoyed interest in the issue.

    Besides, the success of the Eurobond is positive for fiscal policy given the need to finance the 2017 budget and restore the economy to the path of growth.

    Above all other factors that have made the Eurobond successful, is the expertise of the DMO that helped to market the bond and raise the funds mostly needed now by the government.  This was made possible by the capacity DMO which has built up over the years, especially, since it was established in 2000. Prior to the establishment of DMO, the management of the nation’s debt was characterized by systematic and structural deficiencies.

    In practice, debt management functions were split across several government departments including the Federal Ministry of Finance, the Office of the Accountant General of the Federation and the Central Bank of Nigeria. This approach was laden with operational inefficiencies and poor coordination, inadequate debt data recording system and poor information flow across agencies. The result was inaccurate and incomplete loan records which gave rise to difficulties in the verification of creditors’ claims arising from conflicting figures from various bodies handling the debt management function.

    However, the establishment of the DMO brought sanity into the system as it centralised the nation’s debt management functions with the statutory mandate of maintaining comprehensive, accurate and timely records of the nation’s debts, prudent management of the debt portfolio and negotiating with and ensuring debt relief from creditors.

    Besides, the   emergence of Dr. Abraham Nwankwo at the helm of DMO in 2007 gave more fillip to the operations of the agency with positive impact on the economy.

    Given his solid academic background and position as one of the pioneer management staff of DMO, Nwankwo led the charge in the ongoing transformation of the capital market and played a pivotal role in the repositioning, strengthening and resuscitation of the FGN Bond market.

    The DMO has formulated a National Debt Management Framework (NDMF), 2008-2012, a review of same and publication of the revised (2nd) NDMF, 2013-2017 which incorporated debt management policies and guidelines. The agency has ensured regular and timely servicing of government’s debt and has continued to conduct an annual Debt Sustainability Analysis (DSA) as well as successfully preparing a Medium Term Debt Management Strategy (MTDS), 2012-2015 which is being implemented.

  • Johnson wrote in from