Why FG didn’t take $5.5b loan again – Adeosun

The Minister of Finance, Kemi Adeosun, on Tuesday explained why the Federal Government no longer took the $5.5 billion loan it requested the Senate to approve for it.
President Muhammadu Buhari had written and obtained the approval of the Senate to access the loan.
But Adeosun said the Federal Government has been able to raise $3 billion out of the needed $5.5 billion.
The minister disclosed this in her Nigeria’s Eurobond Issuance message released on Wednesday.
She said the decision to reduce the loan from $5.5 billion to $3 billion was informed by the ongoing effort by the Administration to rebalance the nation’s debt portfolio.
The loan comprises of a $1.5 billion 10-year series and a $1.5 billion 30-year series.
The 10-year series will bear interest at a rate of 6.5 per cent, while the 30-year series will bear interest at a rate of 7.625 per cent.
The National Assembly had approved two separate resolutions.
One for $2.5 billion to fund capital expenditure in the 2017 budget and the other to re-finance existing domestic debt of $3 billion, which is not time bound.
The intention for this issuance was to meet the short term requirement to fund $2.5 billion for the 2017 budget.
Adeosun said: “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.
“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.”
On why she raised two different tranches of funding, Adeosun said: “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.
“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 five year, 10 year, 15 year and 30 year issuances trading in the market.
“This provides international investors will the full range of tradeable 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.”