Buhari Seeks N’Assembly Approval for $5.5bn External Loans

• Saraki decries revenue-generating agencies’ expenditure profile

Damilola Oyedele and James Emejo in Abuja

President Muhammadu Buhari has sought the approval of the National Assembly for a $3 billion external loan for re-financing domestic maturing debts and the issuance of a $2.5 billion Eurobond for the funding of the 2017 capital budget.

The letter from the president making the request was read out Tuesday in both chambers of the National Assembly by the President of the Senate, Dr. Bukola Saraki, and the Speaker of the House of Representatives, Hon. Yakubu Dogara.

Buhari in the letter explained that the $3 billion being sought from the international capital market (ICM) will be deployed to refinance maturing domestic debt to achieve more stability in the country’s debt stock and create more borrowing space in the domestic market for the private sector.

He added that replacing domestic debt with foreign debt would enhance the ability of government to execute capital projects and other priority expenditure.
Re-financing the maturing domestic debt would not lead to an increase in the public debt portfolio because the debt already exists as high interest, short-term debt, Buhari clarified.
The $2.5 billion being sought through a Eurobond or Diaspora Bond issue would be used to finance the deficit in the 2017 budget, he added.

Some of the projects to be funded from the Eurobond include the Mambilla hydropower project, the second runway at the Nnamdi Azikiwe International Airport, Abuja, counterpart funding for rail projects, and construction of the Bodo-Bonny road.
Buhari said while the terms and conditions of the borrowings could only be determined at the point of issuance, current market conditions are favourable for the issuance of Eurobonds.

He also sought the expeditious approval of his request.
The letter read: “The Senate may wish to refer to the 2017 Appropriation Act, which has a deficit of N2.356 trillion and provision for new borrowings of N2.321 trillion, respectively. The Act also provides for domestic borrowing of N1.254 trillion and external borrowing of N1.067 trillion (about USD3.5 billion).

“The Senate may wish to note that in order to implement the external borrowing approved by the National Assembly in the 2017 Appropriation Act, the FGN issued a USD300 million Diaspora Bond in the international capital market (ICM) in June 2017.
“The balance of the 2017 external borrowing, in the sum of USD3.2 billion is planned to be partially sourced from issuances in the ICM of USD2.5 billion through Eurobonds or a combination of Eurobonds and Diaspora Bonds, while USD700 million is proposed to be raised from multilateral sources.

“It should be noted that the intention is to issue the Eurobonds first, with the objective of raising all the funds through Eurobonds, and that Diaspora Bonds will only be issued where the full amount cannot be raised through Eurobonds.
“The Senate may wish to note that the proceeds from the proposed issuance of Eurobonds (and Diaspora Bond) in the ICM would be used to finance the deficit in the 2017 Appropriation Act and provide funding for the capital projects captured in the budget.

“The projects include the Mambilla hydropower project, construction of a second runway at the Nnamdi Azikiwe International Airport, Abuja, counterpart funding for rail projects and the construction of the Bodo-Bonny road, with a bridge across the Opobo channel.
“In addition to the implementation of the external borrowing approved in the 2017 Appropriation Act, in order to reduce debt service levels and lengthen the tenor profile of the debt stock, the FGN seeks to substitute maturing domestic debt with less expensive long-term external debt.

“The FGN plans to source USD3.0 billion through the issuance of Eurobonds in the ICM and/or loan syndication by banks, as approved by the Federal Executive Council at its meeting of August 9, 2017.
“It is important to note that the proposed sourcing of USD3.0 billion from external sources to re-finance maturing domestic debt will not lead to an increase in the public debt portfolio because the debt already exists, albeit in the form of high interest short-term domestic debt.

“Rather, the substitution of domestic debt with relatively cheaper and long-term external debt will lead to a significant decrease in debt service cost. This proposed re-financing of domestic debt through external debt will also achieve more stability in the debt stock while also creating more borrowing space in the domestic market for the private sector.
“The Senate will recall that in the 2017 Appropriation Act, debt service at N1.663 trillion represents 32.73 per cent of the FGN’s total expenditure, which makes it important to take urgent steps to reduce debt service cost.

“Failure to rebalance the FGN’s debt portfolio through substitution of domestic debt with less expensive long-term external debt will continue to expose the country to the risk of high debt service-to-revenue ratio, thereby limiting the ability of the government to execute capital projects and other priority expenditure.

“The Senate may wish to note that, in line with the provisions of Sections 21 (1) and 27 (1) of the Debt Management Office, (Establishment, Etc.) Act, Cap D.12 Laws of the Federation, the approval of the National Assembly is required for external borrowings as proposed in Paragraphs 2-5.
“The summary of the requests in Paragraphs 2 to 5 is as follows: i. USD2.5 billion issuance in the international capital market, through Eurobonds or a combination of Eurobonds and Diaspora Bonds, for the financing of the deficit in the 2017 Appropriation Act and capital expenditure projects in the Act as stated in Paragraph 3; and, ii. USD3.0 billion external borrowing for the refinancing of maturing domestic debt obligations through the issuance of Eurobonds or through a loan syndication.

“With respect to the terms and conditions of the proposed external borrowings, the Senate may wish to note that being market-based transactions, the terms and conditions of the borrowings can only be determined at the point of issuance of finalisation based on prevailing market conditions in the ICM.

“It is important to state that the previous issuances of Eurobonds by Nigeria were at the following coupons – USD500 million (2011/10-year): 6.75%; USD500 million (2013/5-year): 5.125%; USD500 million (2013/10-year): 6.375%; and USD1,500 million (2017/15-year): 7.875%, while the USD300 million Diaspora Bond (5-year) issued in June 2017 was at a coupon of 5.625%. These coupons were based on the prevailing market conditions at the respective times.
“It should be noted that current market conditions are considered more favourable than at the time of Nigeria’s last issuances of the Eurobond in March 2017 and the Diaspora Bond in June 2017, with secondary market yields lower than the coupons.

“The Federal Ministry of Finance, the Debt Management Office and the federal government’s appointed transaction parties for the proposed external borrowings will work assiduously within the context of the market to secure the best terms and conditions for the Federal Republic of Nigeria.

“Accordingly, the Senate is requested to kindly approve the following external borrowings: i. Issuance of USD2.5 billion in the ICM, through Eurobonds or a combination of Eurobonds and Diaspora Bonds, for the financing of the FGN 2017 Appropriation Act and Capital Expenditure Projects in the Act; and, ii. Issuance of Eurobond in the ICM and/or loan syndication by banks in the sum of USD3.0 billion for re-financing of maturing domestic debt obligations of the FGN.”