LONDON, Feb 9 (IFR) - Investors are piling into Nigeria's
first US dollar bond since 2013 after the sovereign started
marketing a US$1bn 15-year issue at cheap levels.
The deal is more than five times subscribed, according to
one investor, although the lead managers have yet to announce an
official book size.
Another investor said the bonds are already up over a point
in the grey market.
Fund managers are seizing the opportunity to put in orders
for what one banker away from the deal said was "the cheapest
thing in years."
Nigeria (B1/B/B+) opened books with initial price thoughts
of 8.50% area for the February 2032 bullet maturity.
"I think an IPT of 8.50% is a good starting point to attract
interest from investors given that the deal will only be
US$1bn," said Michael McGill, EM portfolio manager at Aviva
"With the positive start to the year for emerging markets I
suspect demand will be strong and the deal will end up printing
around the 8% area."
Another investor agreed that the starting point was
attractive but was wary about where final pricing would be.
"I hope it is not going to be less than 8%."
At a yield of 8.50%, the deal would be coming in the low
600s over mid-swaps area. Nigeria has outstanding 2023 bonds
that closed on Wednesday at a Z-spread of 468bp, according to
That gap of more than 130bp is much bigger than the spread
difference for other similar-rated sovereigns - the 10s/30s
curve for Egypt (B3/B-/B), for example, is only 75bp.
"Personally I think that 7.75% would be more than enough to
draw demand," said a trader earlier in the week. "Nigeria may
have its problems, but so does Argentina and they trade at
A second trader said he could see pros and cons for
Nigeria's starting point. On the one hand he said it looks very
cheap when one considers that Nigeria has a much better debt
profile than Egypt or Ghana, for example, with an external debt
to GDP ratio estimated to be just 4.2%, according to Moody's.
Moreover, while the economy is mired in its first recession
in 25 years, more stable commodity prices should start improving
"Nigeria's economic growth and US dollar earnings are likely
to gradually improve in 2017, supported by a recovery in oil
production and oil prices," said Moody's on Thursday.
On the other hand, that recovery will depend on how well the
government is able to stand up against militant attacks in its
oil-producing heartland, the Niger Delta.
There are also concerns about FX liquidity, which Fitch
cited last month as one of the reasons why it revised its
outlook on its B+ rating to negative.
"Access to foreign exchange will remain severely restricted
until the Central Bank of Nigeria can establish the credibility
of the Interbank Foreign Exchange Market and bring down the
spread between the official rate and the parallel market rates,"
In the spot market, the naira is trading at a range of
N305-N315 against the dollar.
The bureau de change rate fell to N490 against the dollar in
November, though Fitch says BDC operators subsequently adopted a
reference rate of N400 to help the parallel market converge with
One investor said the country's economy remains troubled.
"The macro story has not improved but the scarcity of issues in
Nigeria is definitely a strong support," said Delphine Arrighi,
portfolio manager at Old Mutual Global Investors.
The 144A/Reg S deal is today's business via lead managers
Citigroup and Standard Chartered.
(Reporting by Sudip Roy; editing by Alex Chambers)