By Bashir Ibrahim Hassan
Sound judegment is exactly the story behind Nigeria’s Debt Management Office (DMO) decision to issue a USD 1 billion Eurobonds in the International Capital Market (ICM) last year despite the risk the pronouncements of US Federal Reserve tapering of the Quantitative Easing (QE) may have on the pricing of the bonds at that particular time. Happily the Eurobonds were over-subscribed and today Nigeria is being splashed with the prestigious 2013 Best Sovereign Bond in Africa Award.
“We’re humbled, God is using the DMO to bless Nigeria” were the modest words of the visibly elated Director General of the DMO, Dr. Abraham Nwankwo, when asked to comment on the Award given to Nigeria by the Emerging Market, Europe, Middle East and Africa (EMEA) Finance.
But, what is that US Federal Reserve (Fed) tapering and Quantitative Easing (QE) policy that are key consideration in the global bond market today? Quantitative Easing (QE) is a bond-buying program of the Fed which was designed to depress long-term bond yields in order to stimulate the US economy. So far the QE has kept yield below levels where they would trade if there had not been the QE policy in place. Tapering on the other hand is the gradual reduction of the policy. For example on December 18,2013 the Fed decided to taper its quantitative easing policy by $10 billion per month, to $75 billion from its $85 billion mark. Chairman of the Fed Ben Bernanke (who has recently been succeeded by Janet Yellen) expects the program to wind down steadily through 2014 and conclude by year-end, assuming the US economy remains healthy. On January 29, this year, the Fed announced that it would taper quantitative easing by another $10 billion per month to $65 billion.
To understand the risk the officials in the DMO took in 2013 when they offered two Eurobond in tenors of 5 and 10 years, each for USD500 million, is to know that the Fed was buying $85 million fixed-income securities on the open market monthly during that period through the QE policy. Yet our bonds were oversubscribed. One factor that accounts for the success of the offer was the confidence investors have in Nigeria’s economy. And, as we all know, confidence is always earned.
The issuance of the Eurobond was part of the DMO carefully crafted public debt management strategy which decided to look up to the ICM to diversify Nigeria’s source of funding its developmental programmes as well as to introduce the country into the highly disciplined international funds markets. Thus in January 2011 Nigeria made its debut in the ICM through issuance of USD500 million 10-year Eurobond. Since then the confidence of the investors in Nigeria’s bond has been on the increase. Most of the funds generated will go into financing the upgrading our power infrastructure, which the country badly needs for its economic growth and development.
What I called risk, Jim Cowles, the CEO of Citigroup for Europe, Middle East and Africa calls it boldness while handing the prestigious EMEA award to Nigeria’s Finance Minister Ngozi Okonj-Iweala recently. And this was how he explained it; “if you look at the timing , this (Nigeria’s issued Eurobond) was the first sovereign bond that was issued in the beginning part of last year and there was quite a bit of turmoil in the market place because of the discussion on tapering the quantitative easing.”
“We think that the Nigerian Government showed courage and foresight in terms of access in the market when they did. When they did go into the market place it generated quite a bit of demand. It was a $1billion offering and the demand was more than four times oversubscribed which gave them an opportunity to have good pricing on the bond.
Therefore, the award came to Nigeria because a combination of all these factors, timing, the size, and pricing in terms of access in the market place. And I will add another factor—the professionalism with which the Dr. Nwankwo’s team at the DMO is managing our debt profile. DMO has been advising the Government of Nigeria on Terms and Conditions of Loans, Restructuring and Refinancing; Maintaining a complete and accurate database of all FGN Borrowings (Domestic and External), including contingent liabilities (guarantees) and Preparing and submiting to the Government annually, a forecast of debt service and borrowing capacity.
The award, EMEA Finance Best Sovereign Bond Award for 2013, which was delivered by Citigroup, one of the leading pan-European investment bank in recognition of Nigeria’s high performing debt profile management is a silver lining, which could not have come at a better time than now when security challenges are pushing Nigerians to the point of despair about the country’s future.
Bashir Ibrahim Hassan contributed this piece from Abuja.