Business Maverick

Business Maverick

Junk-Rated Turkey, Nigeria Defy Market Chaos to Sell Dollar Debt

A Turkish flag by the Bosphorus strait during the evening sunset in Istanbul, Turkey, on Monday, Oct. 4, 2021. Turkey's consumer inflation accelerated in September, driven by a surge in the cost of energy. Photographer: Moe Zoyari/Bloomberg

Two junk-rated developing nations are selling dollar bonds just as the Federal Reserve starts its rate liftoff, shrugging off higher borrowing costs and a choppy market.

Turkey and Nigeria offered greenback-denominated debt on Thursday, with both showing a willingness to pay a juicy premium over similarly-dated outstanding notes. Turkey, which is rated B+ by S&P Global Ratings, launched $2 billion in bonds due 2027 for a yield of 8.625%. Meantime, B- rated Nigeria priced $1.25 billion in notes due 2029 at 8.375%, according to people familiar with the deal who asked not to be identified because they aren’t authorized to speak about it.

The timing of the deals surprised investors given that yields are rising worldwide as the Fed raises interest rates and commodity-price increases since Russia’s Ukraine war threaten to increase inflation. While Nigeria stands to benefit from the rally in oil prices, as Africa’s largest producer, it needs to raise money to close budget shortfalls that have risen since the pandemic.

“Both are having to pay up to get their deals done now in the choppy market,” said Edwin Gutierrez, head of emerging-market sovereign debt at Aberdeen Asset Management in London, of Nigeria and Turkey. “To me the bigger surprise is Nigeria given the oil windfall they are currently enjoying.”

Turkey and Nigeria dollar bond yields edged higher amid war, Fed rate hike

Gutierrez said Nigeria could have afforded to wait a bit longer to tap markets, while Turkey had less room to decide the timing given its “substantial issuance needs.”

Turkey sold $3 billion in sukuk dollar bonds just a month ago, its largest overseas debt placement on record, paying a higher yield than most similar bonds. While the nation was able to reduce the cost of issuance by 25 basis points from the initial price target, the notes were still launched with a premium of about 60 basis points over outstanding notes that mature just six months earlier and currently yield 8.1%.

Nigeria paid 37.5 basis points less than the initial guidance for its 2029 bonds, which were priced with a premium of around 55 basis points over its dollar bonds due a year earlier, which currently trade at a 7.8% yield.

“It was unexpected. Our base case expectation for Nigeria’s issuance was in the second half” of the year, said Tatonga Rusike, the London-based sub-Saharan economist at Bank of America Corp. He said that despite high oil prices, the government continues to run a budget deficit, requiring “external financing.”

Read more: Nigeria Plans First Eurobond Sale Since Russia’s War on Ukraine

Nigeria’s deficit is expected to widen to 6.4% of gross domestic product this year from a pre-pandemic average of 4.3% due to the rising cost of fuel subsidies, according to the International Monetary Fund forecasts.


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