Why we took $3 billion loan instead of $5.5 billion – Finance Minister

So far, we have moved our domestic/international debt ratio from 18:82 to 23:77 and we expect this to improve to circa 27:73 by year end, with an ultimate target of 40:60.

Why we took $3 billion loan instead of $5.5 billion - Minister of Finance - Surge.ng
Minister of Finance Kemi Adeosun/ Photo credit: Instagram

The Minister of Finance, Mrs. Kemi Adeosun in a message released on Wednesday says the Federal government has raised a total of US$3 billion instead to the $5.5 billion as approved by the National Assembly.

Her statement reads: ‘‘Nigeria has raised a total of US$3 billion. The Notes comprise a US$1.5 billion 10-year series and a US$1.5 billion 30-year series. The 10-year series will bear interest at a rate of 6.5%, while the 30-year series will bear interest at a rate of 7.625%.

‘‘Over the last 5 years, Nigeria has been overly focused on domestic debt, which is short term and high cost. This means that we pay too much, and have to regularly refinance existing debt rather than having the security of longer term instruments. You can see this clearly reflected in our debt service to revenue ratio, which @ 45% as of Third Quarter (Q3) 2017, is higher than we would like. Having returned the economy to growth in 2017 and secured a stable and liquid exchange rate regime, we are focused on addressing this issue by diversifying our sources of debt to achieve an optimal balance.

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‘’So far, we have moved our domestic/international debt ratio from 18:82 to 23:77 and we expect this to improve to circa 27:73 by year end, with an ultimate target of 40:60. This will deliver significant savings in our debt service costs, with provisional estimates demonstrating savings of up to N91 billion in 2018 alone.’’

‘‘By raising US$1.5 billion of 30-year notes, Nigeria has emulated a number of our international contemporaries, including Brazil, South Africa, Argentina and Egypt to issue long dated debt as the basis for long term infrastructure financing and to establish a benchmark for the private sector to extend the tenure of its own financing. This is critical to delivering an environment within which both the government, and the domestic private sector, can rapidly enhance its ability to fund investments in infrastructure projects and broader project finance. The full US$1.5 billion proceeds of the 30 year notes are allocated to 2017 capital projects.

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‘‘Nigeria has raised a further US$1.5 billion of 10 year notes, and following the current issue, we now have a full ‘basket’ of international debt notes, including 5 year, 10 year, 15 year and 30 year issuances trading in the market.

‘‘This provides international investors will the full range of tradable options in Nigeria’s international debt. Of the US$1.5 billion of 10 year notes, US$1 billion will be allocated to the 2017 capital budget, under our US$2.5 billion approval from the national assembly, with the balance of US$500 million allocated to refinancing of domestic debt, in line with our strategy to re-balance our domestic/international debt profile.’’

‘‘Following significant investor interest of over US$11 billion, we brought forward a further US$500 million of funding towards the refinancing of existing domestic debt and will assess options for concluding the refinancing process in the New Year. ‘‘Restricting this issuance to US$3 billion also enabled us to optimise the price of the notes, which at 6.5% (10-year) and 7.625% (30-year) are significant improvements to our existing portfolio,’’ she said.

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