CASE STUDY: Demand for Nigerian Eurobond Swells, Repricing Secondary Curve

CASE STUDY: Demand for Nigerian Eurobond Swells, Repricing Secondary Curve

The Federal Republic of Nigeria managed to aggressively price an oversubscribed US$1bn 15-year trade against a backdrop of significant political and economic volatility, a sign that investor confidence is slowly returning to the African sovereign.

Deal At A Glance

Deal Type: Eurobond

Deal Structure: RegS/144A

Issuer: Federal Republic of Nigeria

Deal Size: US$1bn

Issue Date: February 2017

Tenor: 15 years

Coupon: 7.875%

Price: 100%

Yield: UST+547.8bp

Issuer Rating: B1/B+/B (Fitch/Moody’s/S&P)

Governing Law: English Law

Location: Nigeria

Listing: London Stock Exchange

MLAs/ Bookrunners: Citigroup, Standard Chartered Bank, Stanbic IBTC

Legal Adviser to JLMs / Bookrunners: Allen & Overy LLP, Udo Udoma & Belo-Osagie

Legal Adviser to Issuer: White & Case LLP, Banwo & Ighodalo

Use of Proceeds: To finance the deficit and optimise debt profile

Background

The Federal Republic of Nigeria sought external funding of between US$750mn and US$1bn to help finance the country’s growing deficit which surged to more than US$7bn, help restructure the country’s existing debt, and help finance future infrastructure expenditure.

On 9 February, 2017, the African sovereign successfully priced a 15-year US$1bn Eurobond, the longest maturity seen yet on a hard currency issuance out of Nigeria.

Transaction Breakdown

The transaction followed a London based non-deal roadshow exercise in June 2016 that was solely led by Standard Chartered.

Following the establishment of a new General Medium Term Note (GMTN) Programme and the announcement of investor meetings in UK and US, Nigeria priced a very successful US$1bn 15-year Eurobond with a coupon of 7.875% on 9 February, 2017.

The transaction was announced 9 February at initial price talk of 8.50% before guidance was tightened to a range of 8.125% -- 8.375% on the back of strong positive reception, before final guidance of 8% area +/- 0.125% was set.

With the order books continuing to grow, the deal priced at the tight end of guidance at a yield of 7.875%, with the orderbook recording 370 bids totalling more than US$7.7bn.

Bond investors were particularly impressed with the sovereign’s reform plans, and its intention to spend up to 30% of its budget expenditure on infrastructure development. The size of the book also reflected stronger confidence in the price of oil, Nigeria’s main export.

About 48% of the notes were allocated to accounts based in the US, 37% to accounts in the UK, 10% to accounts in Europe and 5% to Asia and elsewhere. Roughly 73% of the notes were placed with asset managers, 13% hedge funds, 10% insurers and pension funds, and 3% private banks.

The transaction repriced the Nigerian secondary curve, with the 2021 and 2023 bonds tightening in the process.

The issue is Nigeria’s third outing in the international capital markets and the longest tenor and largest orderbook achieved by the sovereign to date.   

 

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