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Currency fall puts $11bn Eurobonds at risk

By BusinessNews Staff on March 12, 2015

The Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, says the continued currency depreciation in Nigeria and sub-Saharan African countries is putting $11bn foreign loan in the region at risk of repayment.

He said the $11bn loan was taken through Eurobonds issued by some countries in the last two years.

Rewane, a Nigeria-based researcher and economist, stated this during the March edition of a monthly economic news and views at the Lagos Business School Executive Breakfast Meeting.

It was entitled, ‘Postponement or devaluation, a choice between bad and worse,’

He described the huge loan as an escalating risk from Eurobond issuers.

Rewane said, “Ivory Coast issued $1bn Eurobond last week; it was four times oversubscribed. Tanzania, Uganda, Rwanda and Nigeria are set to follow. The debt repayments are hinged on strong economic growth and growth is currently at risk of stalling because export markets are slowing down and commodity prices are plummeting. Consequently, currency depreciation puts over $11bn in repayments at risk for money borrowed over the last two years.”

The researcher, who recalled that the fourth quarter Gross Domestic Product growth slowed by 0.29 per cent to 5.94 per cent, linked it to lower productivity from power cuts and increased manufacturing downtime.

According to him, reduced output from the troubled North-East and the falling aggregate demand from the non-oil sector have led to the slash in most estimates for 2015.

Rewane noted that developments in the global economy would have impact on the Nigerian economy.

He said, “Trade in Nigeria will be boosted by consumer spending growth in advanced economies. A further fall in the euro means cheaper exports from CFA Franc African countries will compete with Nigerian exports. This will negatively impact on Nigeria’s terms of trade. Chinese interest rate cut has pushed the yuan to a three-year low of 6.27 per dollar. About seven per cent of Nigeria’s external reserves are kept in yuan.”

According to the FDC boss, Bank of America has estimated Nigeria’s 2015 GDP growth at 3.5 per cent, just as Standard & Poor has revised the country’s forecast to credit watch negative from negative BB-.

He noted that Nigeria would run a current account deficit of 1.4 per cent of the GDP in 2015 to 2018, while adding that the FBN Purchasing Managers Index made up of five key variables had slowed by 0.2 to 56.2 due to a sharp decline in suppliers delivery time. High level of de-stocking led to a lower inventory level.

He further noted that “the national grid power output was down by 3.41 per cent to 3500MW in January, The federal and state governments’ revenues in January were down by 13.83 per cent to N500.13bn, which would have been lower if not for the 16 per cent evaluation effect.

“Headline inflation was up from eight per cent to 8.2 per cent in January. The delayed devaluation impact will push price level up to nine per cent in February,” Rewane said.

[Punch]

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