Foreign Investors Appetite for Nigerian Bonds Grows

Nigeria and some other African countries are expected to sell debt instruments at about $7 billion this year, higher than the combined amount sold in the past five years.

With the International Monetary Fund (IMF) forecasting growth in sub-Saharan Africa to outpace all regions except emerging Asia this year, Nigeria, Kenya and six other countries in the continent have either sold or are planning to offer record amounts of bonds overseas.

Average yields on African debt fell by 88 basis points in the past 12 months to 4.35 per cent, compared to 1.75 per cent for 10-year Treasuries, according to JPMorgan Chase & Co.
Bloomberg pointed out that the continent was captivating bondholders as governments take advantage of record-low interest rates to fund infrastructure projects, such as the construction of roads, railways, ports and hydropower plants.

Policy makers in the continent of more than a billion people are seeking to reduce reliance on donor aid by improving tax collection and diversifying their commodities-dependent economies.

The Chairman of Goldman Sachs Asset Management, Jim O’Neill, said: “It is a hugely exciting story. The only thing one has to be a little bit careful of are many of those markets are still very undeveloped and suddenly there’s a lot of people around the world regarding Africa to be sort of fashionable and trendy.”

Nigeria plans to offer $1 billion of Eurobonds this year and a $500 million diaspora bond, the Minister of State for Finance, Yerima Ngama, had said.

Also, Kenya, East Africa’s largest economy, expects to sell sovereign bonds by September, raising as much as $1 billion, the country’s Finance Minister, Robinson Githae, had also said.

Similarly, while Tanzania recently enlisted New York-based Citigroup to help it get a credit rating before issuing a maiden Eurobond of at least $500 million by year-end, Angola also plans to sell $2 billion this year after a $1 billion private sale in 2012.

“We see significant potential in Africa. Investors’ search for portfolio diversity as well as yield contributes to high demand for initial offerings from issuers in a frontier region with demonstrated growth potential,” a sovereign analyst at Moody’s in New York, Kristin Lindow argued.

On his part, a senior Africa analyst at Eurasia Group, Mark Rosenberg noted that: “The current conditions of a lot of liquidity out there is not going to last forever, but these political risks that are there and perhaps being under-appreciated are not going away.”

But the Global Chief Economist at Renaissance Capital, Charles Robertson, stated that: “I still don’t believe investors are getting risk- adjusted returns in the dollar-bond space.”

 …………………….THIS DAY