(Bloomberg) -- Nigeria’s government raised $900 million in its first domestic sale of dollar-denominated bonds, almost double the targeted amount, as local investors clamored for the high-yielding securities to hedge against currency devaluation.
The five-year notes have a coupon of 9.75%, compared with a yield of about 9.67% at the market open for similar-maturity Nigerian eurobonds. The issue was 180% oversubscribed, the Lagos-based Africa Finance Corp., which served as global coordinator of the sale, said in an emailed statement on Wednesday.
Africa’s most populous nation announced plans in August to raise $500 million from local investors in an initial round of fund-raising that will ultimately target $2 billion. The nation is issuing US-currency bonds domestically to help bridge infrastructure-financing gaps, given market conditions haven’t been favorable for a eurobond offer, according to the government.
President Bola Tinubu in January signed a 28.8 trillion-naira ($17.4 billion) spending plan for 2024, with a deficit of 9.8 trillion naira. He later ramped up the plan to 35 trillion naira through a supplementary budget, widening the shortfall that has to be financed from external and domestic borrowing.
Investor Confidence
Investors were attracted to the local dollar bond “as it offered very high returns and a hedge against foreign-exchange devaluation,” said Adetilewa Adebajo, an economist and chief executive officer at Lagos-based CFG Advisory. “While the economic outlook may be weak, there is investor confidence that the country is not in any risk of default.”
Tinubu’s government has allowed the naira to trade freely, leading to a more-than-50% depreciation in the past year. The volatile exchange rate is prompting residents to seek hedging instruments such as the domestic dollar bond, Adebajo said.
The local currency depreciated 3.6% to 1,639 naira per dollar on Wednesday, its biggest decline in more than three months, according to FMDQ data compiled by Bloomberg. Meanwhile, the yield on Nigeria’s 2029 eurobonds rose 11 basis points to 9.78%.
The domestic dollar bond will shore up the government’s foreign currency holdings and its ability to supply demand for dollars from businesses, said Samuel Sule, the CEO of Renaissance Capital Africa. “The expectation is that the government can tap another of such bond within the next one year as it’s an easier source of funding.”
(Updates throughout with analysts’ comments, background)
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