Nigeria Bonds Jump as Big Corporate Loan Boosts Dollar Liquidity

(Bloomberg) -- The price of Nigerian government dollar bonds jumped after the country’s state-owned energy company obtained a $3 billion loan that will help boost the supply of hard currency on the local foreign-exchange market.

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The sovereign’s dollar bonds due in 2047 gained 1.5 cents on Thursday to 69.31 cents on the dollar, the biggest daily increase since July, driving down the yield to 11.36%. Nigeria’s international bonds due in 2033 and 2051 also advanced.

The rally comes after yields spiked earlier in the week when the West African nation capped gasoline prices, sending the parallel-market exchange rate for the naira currency to new lows amid a shortage of the greenback. State-owned energy company NNPC signed the $3 billion agreement with Afreximbank on Wednesday, saying the funds will help with the nation’s dollar liquidity.

“News of the $3 billion loan, and a moderation in the parallel market rate, likely contributed to the recovery in the bonds,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank in London. “Eurobond holders will be on the lookout for further policy actions to improve foreign exchange liquidity and a strategy to rebuild foreign exchange reserves over time.”

Further boosting sentiment, Nigeria’s President Bola Tinubu named former investment banker Wale Edun as finance minister late on Wednesday. Edun has played a key role in the nation’s market-pleasing moves away from the unorthodox poliices of suspended central bank governor Godwin Emefiele.

NNPC’s agreement includes an immediate disbursement of some of the funds to support the Nigerian government “in its ongoing fiscal and monetary policy reforms aimed at stabilizing the exchange rate market,” the company said. The loan will equip the government “with the necessary dollar liquidity to stabilize the naira, with limited risk,” it said.

However, while providing short-term relief, the loan doesn’t address the underlying issues driving Nigeria’s dollar shortage — including an overly accommodative monetary policy, according to Bismark Rewane, the chief executive officer of consultancy Financial Derivatives Co. in Lagos.

“The fundamental issues include the difference between interest rate and the rate of inflation, also the fact that oil supply is affected by theft and vandalism,” Rewane said.

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