The International Finance Corp. raised the size of its debut Nigerian local-currency bond sale to 12 billion naira ($76.3 million) after investors sought more than twice the amount initially offered amid pent-up demand for debt of Africa’s biggest oil producer.
The World Bank unit planned to issue 8 billion naira and increased the amount after orders came in at 20 billion naira, Jingdong Hua, vice-president and treasurer at the IFC, said in a phone interview from Washington yesterday. The “Naija” bonds, which will be listed on the Nigerian Stock Exchange and mature in February 2018, were sold with a 10.2 percent coupon, he said.
Nigeria’s bond yields have dropped to record lows as JPMorgan Chase & Co., the world’s biggest underwriter of emerging-market debt, added the securities to its benchmark GBI- EM index in October. Barclays Plc will add Nigerian debt to its local-currency government bond index next month.
“Nigeria has seen a lot of interest,” Stuart Culverhouse, chief economist at London-based brokerage Exotix Ltd., said in a phone interview from London yesterday. “A lot of investors can’t do local currency” and “because it’s an international issuer it would reduce some investor concerns about accessing the local market directly and gives them another way of getting exposure,” he said.
The bond will pave the way for international issuers to sell in Nigerian currency, Hua said. “The market is feeling hot because it’s being included in the JPMorgan and Barclays indexes.”
Yields on Nigerian government bonds maturing January 2022 have fallen 97 basis points, or 0.97 percent, this year to 11.01 percent, according to yesterday’s data compiled on the Financial Markets Dealers Association website. The extra yield investors receive for holding Nigerian dollar bonds maturing in January 2021 rather than similar-maturity South African dollar debt has narrowed 60 basis points this year to 48.
The Central Bank of Nigeria led by Governor Lamido Sanusi left the benchmark interest rate unchanged at a record-high 12 percent for an eighth consecutive meeting on Jan. 21. While inflation eased to 12 percent in December, it’s still above the bank’s goal of below 10 percent.
The naira, which advanced 3.9 percent last year against the dollar, the best-performing currency in Africa, is being supported in part by portfolio inflows, Sanusi said after the meeting. Short-term inflows are less than 20 percent of reserves, he said in a Jan. 25 interview.
“The lower-hanging fruit around the trade has probably evaporated somewhat, but I think there is some attractive upside left,” said Culverhouse. “The central bank is likely to cut interest rates this year in the first half and that should give stimulus to yield compression.”
Chapel Hill Advisory Partners Ltd. in Lagos, Nigeria’s commercial capital, and Standard Chartered Plc are the lead managers of the IFC bond sale.
The lender has a committed portfolio of $1.1 billion in Nigeria, it’s largest on the continent and eighth-largest globally. The IFC announced in May a pan-African medium-term bond program, which focuses on countries including Botswana, Kenya, South Africa, Uganda and Zambia. The so-called Naija bonds are not part of the program.
The IFC is planning to issue another one or two African local-currency bonds this year, Hua said. “We are working very hard to promote local-currency lending.”
The Washington-based lender’s investments in sub-Saharan Africa have tripled since 2006, reaching $4 billion last year.
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