Fed Govt to fund 2021 budget with ICM’s Eurobond

The Federal Government will be funding the 20201 budget with Eurobond cash raised from the International Capital Market (ICM). 

Government has also appointed Transaction Advisers to perfect the issuing process before approaching the ICM. If fully subscribed, proceeds from the issued Eurobonds will be used to finance 2021 budget.

The Debt Management Office (DMO) in a press release issued in Abuja on Wednesday said “Transaction Advisers of various categories are required to work with an issuer, in this case Nigeria, to ensure the success of the Transaction”.

The institutions approved by the Federal Executive Council (FEC) at its meeting on Wednesday, August 4, 2021, to advise on the Eurobond Issuance are: International Bookrunners-JP Morgan, Citigroup Global Markets Limited;  Joint Lead Managers -Standard Chartered Bank and Goldman Sachs. Others are  Nigerian Bookrunner -Chapel Hill Denham Advisory Services Ltd; Financial Adviser – FSDH Merchant Bank Ltd; International Legal Adviser- White & Case LLP  and Nigerian Legal Adviser- Banwo & Ighodalo. 

DMO said the “Transaction Advisers emerged from an Open Competitive Bidding Process as outlined in the Public Procurement Act, 2007 (as amended)”.

A total of 38 institutions responded to the Expression of Interest, “and after rigorous evaluation to ascertain the technical capacities of the responders to execute the Transaction, the eight institutions above were selected”.

With the approval of the Transaction Advisers by FEC, the DMO will now accelerate activities towards issuing the Eurobonds.

The Debt Management Office (DMO) has already secured the approval of both the Senate and the House of Representatives.

The planned Eurobonds are for the purpose “of raising funds for the New External Borrowing of N2.343 trillion (about $6.2 billion) provided in the 2021 Appropriation Act to part finance the Deficit”.

According to the DMO, “whilst the government expects a successful outing, it will be mindful of costs and risks (in terms of tenor and pricing) in determining the amount of Eurobonds to issue”.

DMO added that “since the Eurobonds are being issued to part finance the 2021 Budget Deficit, the proceeds will be used to fund various projects in the Budget”.

“In addition, the proceeds will result in an inflow of foreign exchange which in turn, will increase Nigeria’s External Reserves and support the Naira Exchange Rate”.

In emailed note to investors, Managing Director, Financial Derivatives Limited, Bismarck Rewane, said Nigeria will raise $3 billion from the ICM, and has accessed $3.2 billion from the International Monetary Fund (IMF).

Rewane said the  IMF Board approved Special Drawing Rights (SDR) of $650 billion to member countries, of which Nigeria will receive $3.35 billion. 

“This is expected to boost liquidity and the external position of economies especially at a time of rising covid infections. The IMF had earlier provided Nigeria with palliative support worth $3.2 billion, bringing the Fund’s total support this year to approximately $7 billion, which is approximately 20 per cent of the external reserves level ($33.48 billion),” he said. 

Rewane explained that like Ghana, Rwanda and Kenya, Nigeria is likely to go to the Eurobond market to raise funds ($3 billion). 

He said the recent policy reforms embarked by the authorities will make Nigeria more attractive to lenders, depending on its rating outlook. However, the downside to rising external debt is that when interest rates start to increase, servicing the debt will become more onerous.