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Foreign investors seek 7% yield on Nigeria’s Eurobond

Foreign investors attending the federal government’s international road show on the upcoming $1 billion Eurobond are seeking interest rate (yield) of above seven percent on the bond. Finance Minister Kemi Adeosun, Central Bank Governor Godwin Emefiele and other senior government officials have been meeting investors this week in London and the United States on a road-show to issue the bond with a 15-year maturity.

Among other things, investors that attended the   London-leg of the road-show held on February 3rd and February 6th, expressed concerns over the Naira exchange rate and the nation’s crude oil output.

A source with knowledge of the investor meetings, organised by Citigroup and Standard Chartered Bank said that oil production and currency were the two main issues investors were considering in pricing the bond this week.

Investors also asked about the continuity of government policies in the absence of President Muhammadu Buhari, who is in Britain on medical leave. “The real concern is oil production and foreign exchange. Will there be a further devaluation this year?” the source said, adding that investors queuing for the dollar bond were looking at a potential yield above 7 percent.

“The foreign-exchange policy is the elephant in the room,” said Oliver Weeks, who attended the Feb. 3 meeting at London’s Corinthia Hotel for Emso Asset Management Ltd., which manages about $3.5 billion of emerging-market bonds. “They didn’t address it.

The fact they’re doing the Eurobond before addressing it is a sign that the foreign-exchange policy won’t improve quickly.”

Nigeria should be able to raise 15-year bonds if they yield about 8.0  per cent, or 10-year notes if they yield 7.5 percent, according to Kevin Daly, a money manager who helps oversee about $11 billion of developing-nation assets for Aberdeen Asset Management Ltd. in London.

The naira needs to weaken to about N380 per dollar for foreign investors to return to Nigeria’s local markets, according to Daly.

Adeosun told money managers that such a move was difficult since it may lead to an increase in the price of petrol, almost all of which Nigeria imports, Daly said.

“My takeaway from the meetings is that they’re going to hold the line on the naira,” Daly said. “They didn’t promise anything concrete. They said they were working on fine-tuning the foreign-exchange system. But what does fine-tuning mean? It’s clear they’re getting tired of answering questions about the naira.”

The central bank will probably wait until President Muhammadu Buhari, who’s argued against a devaluation, returns to Nigeria before revising its policies, according to Richard Segal, a senior analyst at Manulife Asset Management in London, who also attended the meetings.

Buhari may even refuse to budge before the next election in 2019, lest it hurts him politically in a country where many people view the exchange-rate as a gauge of the government’s competence, analysts at BMI Research said in a note last month.

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