Just a few years ago, the Nigerian naira was hot, especially for investors desperate for yield. Below is a passage from a Wall Street Journal article in April 2013, emphasis ours:
“Africa is very appealing to investors because they are buying access to growth and commodity- and consumer-driven economies,” said Lauren van Bijon, emerging-markets analyst at First International Advisors, a wholly owned subsidiary of Wells Capital Management, which has $332 billion of assets under management and is owned by Wells Fargo & Co. Its funds hold both Nigerian and South African debt.Arbiter Partners Slumps -19.3% As Top Holding Crashes
Paul J. Isaac's Arbiter Partners returned -19.3% in the third quarter of 2021, according to a copy of the hedge fund's quarterly investor correspondence, which ValueWalk has been able to review. Following this performance, the fund's return sits at -1.6% for the year to the end of September. In comparison, the S&P 500 returned 15.9%, Read More
“With any upcoming bonds, there should be significant investor demand,” Ms. van Bijon said, noting that debt sales are usually small—ranging from $500 million to $1 billion—meaning there will be “more than enough money to mop it up.” She favors Nigerian debt, citing the country’s economy, long-term prospects and credit rating.
The most recent bond issued in Africa was an unrated private-placement dollar bond from Tanzania, the first international debt sale by the East African country. Investec Asset Management, which has $105 billion under management, was an investor, saying in a recent note to clients that it bought the issue because of the country’s strong economic growth, recent oil and gas discoveries and attractive pricing.
Tanzania’s $600 million seven-year bond was sold with a yield of around 6.284%, compared with the 4.23% yield that Nigeria’s 2021 dollar bond is trading at.”
Plunging crude oil prices have put the Nigerian naira in the dumps. The Nigerian currency dropped to a record low on Monday, after the central bank of the oil-dependent nation of Nigeria took several steps to protect fast-evaporating foreign reserves.
The Nigerian currency dropped to a record low of 282 naira per dollar on the black market late Monday following the central bank’s announcement.
Details on Nigerian currency collapse
The central bank of Nigeria has stopped all dollar sales to non-bank foreign exchange operators and is letting commercial banks accept dollar deposits with immediate effect, its governor said on Monday, as the bank takes steps to try and preserve foreign reserves.
Africa’s biggest economy frighteningly depends on oil sales for close to 95% of its foreign reserves, and the country’s economy is reeling from the collapse in global oil prices, leading to a rapid decline in the nation’s currency the naira.
The governor of the Nigerian central bank noted that the sale of foreign exchange to “bureaux de change” businesses was being halted because they were the country’s foreign reserves for illegal transactions by selling the dollar at 250 naira instead of the official central bank rate of 197 naira to the dollar.
Statement from Central Bank of Nigeria Governor
“Operators in this segment of the market would now need to source their foreign exchange from autonomous source,” Central Bank of Nigeria Governor Godwin Emefiele commented in an e-mailed statement to the press on Monday. “They must however note that the CBN would deploy more resources to monitoring these sources to ensure that no operator is in violation of our anti-money laundering laws.”
Nigeria is struggling to survive in the new world of crude oil at $30 to $35 a barrel. Analysts point out that oil tax revenues represent over two-thirds of Nigerian government revenue and 90% of foreign currency earnings. The new ban on foreign currency sales to BDCs is just the latest in a series of steps by the central bank to support the naira.
Of note, the Nigerian currency was unchanged at 199.05 naira to dollar on the official market as of 1:30 pm in the capital of Lagos. The tree-month non-deliverable futures contracts were up, however, by 4.3% to 250.50 naira to the dollar, a record high close for the struggling currency, suggesting more FX pressures building in the coming months.