Adeosun: Why We Did Not Raise Entire $5.5bn Approved by N’Assembly

Ndubuisi Francis in Abuja

The Minister of Finance, Mrs. Kemi Adeosun, has explained that the federal government decided to issue only $3 billion Eurobond and not the entire US$5.5 billion recently approved by the National Assembly, saying doing so enabled the optimisation of the price of the notes.

She stated that restricting the issuance to $3 billion helped the country to optimise the price of the notes, which at 6.5 per cent (10-year) and 7.625 per cent (30-year) are significant improvements to the existing portfolio.
According to her, the National Assembly approved two separate resolutions–one for US$2.5 billion to fund capital expenditure in the 2017 budget and the other to re-finance existing domestic debt of $3 billion, which is not time- bound.

“Our intention for this issuance was to meet our short term requirement to fund US$2.5 billion for the 2017bBudget. Following significant investor interest of over US$11 billion, we brought forward a further US$500 million of funding towards the refinancing of existing domestic debt and will assess options for concluding the refinancing process in the new year,” she said.

The minister, who was responding to frequently asked questions, explained why Nigeria raised two different tranches of funding, and how they differ.

According to her, by raising $1.5 billion of 30-year notes, Nigeria had emulated a number of her international contemporaries, including Brazil, South Africa, Argentina and Egypt to issue long-dated debt as the basis for long-term infrastructure financing and to establish a benchmark for the private sector to extend the tenure of its own financing.

“This is critical to delivering an environment within which both the government, and the domestic private sector, can rapidly enhance its ability to fund investments in infrastructure projects and broader project finance. The full $1.5 billion proceeds of the 30 year notes are allocated to 2017 capital projects.

“Nigeria has raised a further $1.5 billion of 10 year notes, and following the current issue, we now have a full ‘basket’ of international debt notes, including 5 year, 10 year, 15 year and 30 year issuances trading in the market. This provides international investors with the full range of tradeable options in Nigeria’s international debt.

“Of the $1.5 billion of 10 year notes, $1 billion will be allocated to the 2017 capital budget, under our $2.5 billion approval from the National Assembly, with the balance of US$500 million allocated to refinancing of domestic debt, in line with our strategy to re-balance our domestic/international debt profile,” Adeosun said.
On why the country is re-balancing the debt portfolio and increasing international borrowing, the minister noted that “over the last five years, Nigeria has been overly focused on domestic debt, which is short term and high cost.”

She added: “This means that we pay too much, and have to regularly refinance existing debt rather than having the security of longer term instruments. You can see this clearly reflected in our debt service to revenue ratio, which at 45 per cent as of Third Quarter (Q3) 2017, is higher than we would like.

“Having returned the economy to growth in 2017 and secured a stable and liquid exchange rate regime, we are focused on addressing this issue by diversifying our sources of debt to achieve an optimal balance.

“So far, we have moved our domestic/international debt ratio from 18:82 to 23:77 and we expect this to improve to circa 27:73 by year end, with an ultimate target of 40:60. This will deliver significant savings in our debt service costs, with provisional estimates demonstrating savings of up to N91 billion in 2018 alone,” the minister stressed.

Adeosun also spoke on what the proceeds of the financing would be channelled into, saying they would be split between 2017 budget capital projects ($2.5 billion) and re-financing some short-term domestic debt ($500 million).
“Capital projects under the 2017 budget include road, rail, power and housing projects which are crucial to the delivery of the economic recovery and growth plan,” she stressed.

for this issuance was to meet our short term requirement to fund $2.5 billion for the 2017 budget. Following significant investor interest of over $11 billion, we brought forward a further US$500 million of funding towards the refinancing of existing domestic debt and will assess options for concluding the refinancing process in the New Year. Restricting this issuance to US$3 billion also enabled us to optimise the price of the notes, which at 6.5 per cent (10-year) and 7.625 per cent (30-year) are significant improvements to our existing portfolio.