FG mulls $1bn Eurobond to finance power projects

The Federal Government plans to sell $1 billion of Eurobonds to finance power projects after meetings with international investors in June, Ngozi Okonjo-Iweala, coordinating minister of the economy and finance minister, has said.

The securities will be dollar-denominated, Okonjo-Iweala said in an interview in Cape Town, where she attended the World Economic Forum on Africa. Nigeria is to host the conference for the first time next year, she said.

Nigeria is tapping global markets for the second time, taking advantage of investors’ appetite for higher-yielding assets. The government is raising funds to boost electricity output in a country where demand is almost double the supply of about 4,000 megawatts.

“Preparations are going full-steam ahead” to sell the bonds, Okonjo-Iweala said. “We need $10 billion a year in investment in infrastructure in Nigeria in order to keep up with the needs of the country.”

Blackouts are a daily occurrence in the country. President Goodluck Jonathan said in a May 8 statement that the government cannot alone build the infrastructure that the country needs.

Nigeria’s $500 million of bonds due January 2021 have surged since the debut in 2011, sending yields 271 basis points, or 2.71 percentage points, lower to 4.08 percent, according to data compiled by Bloomberg. “Our prospects are very good” for the new sale based on the yield drop, Okonjo-Iweala said.

Nigeria’s economy may come under pressure because of declining oil prices, Okonjo-Iweala said. Bonny Light crude, one of the country’s main export blends, has fallen 12 percent to $107.18 a barrel in London since this year’s peak on February 8.

“We’re quite concerned with the decline in oil prices,” Okonjo-Iweala said. “We have to be since we get 75 percent of revenues from oil.”

Nigeria has oil savings of $7 billion in the excess crude account and a $1 billion sovereign wealth fund to help buffer the economy, she said. The government lost about $1 billion last month because of missed oil production targets, said Okonjo-Iweala.

Production fell to 1.81 million barrels a day in March, the lowest level since September 2009, according to data compiled by Bloomberg. Output averaged 2.2 million barrels a day in the first quarter, according to figures released by Nigerian National Petroleum Corporation (NNPC) on April 17. That compares with a production forecast of 2.53 million barrels a day used in this year’s budget. The loss was due to crude theft and pipeline sabotage, according to NNPC.

“We’ve quickly put mechanisms in place to try to recover that,” Okonjo-Iweala said. “We expect by this coming month, we’ll be back on stream. We also have a buffer of savings to deal with that.”

Lower interest rates would spur growth in the economy and help entrepreneurs borrow and invest in their businesses, she said. The central bank governor, Sanusi Lamido Sanusi, said in a March interview that he wants to keep the benchmark interest rate at a record high of 12 percent to ensure currency stability and control inflation.

The naira has gained 3.2 percent since the end of 2011 to 157.3 per dollar. Nigeria’s inflation rate fell to its lowest in almost five years in March, easing to 8.6 percent from 9.5 percent in February.

“If we can continue to work together to drive inflation down and banks also look at their cost margins, we want to see interest rates in a much more friendly zone to encourage the private sector,” said Okonjo-Iweala. “I’m not going to jump in and predict policy for the central bank. I’m not going to speculate on what they’re going to do.”