Nigeria to Guarantee Bonds for Road, Rail, Electricity Projects

Nigeria’s government plans to guarantee bonds sold by companies involved in large-scale road, rail and power projects in Africa’s most populous nation, according to the Debt Management Office.

The framework for “issuing the sovereign guarantees is still being fine-tuned,” Patience Oniha, executive director in charge of market development at the Abuja-based DMO, said in an e-mailed response to questions. She didn’t give details of the companies that may benefit from the debt guarantees.

Power supply in Nigeria, Africa’s largest oil producer, is less than half demand, causing regular blackouts in a nation of more than 160 million people. President Goodluck Jonathan plans to sell six power plants and majority stakes in 11 power- distribution companies to end a state monopoly.

Debt guarantees will enable companies to fund projects that “they may ordinarily have been unable to embark upon due to inability to access large and long-term capital required,” Oniha said. The program is “intended to be used as a means of supporting private sector operators who are involved in projects that have large macroeconomic benefits either alone or in partnership with the government.”

The target for the budget deficit this year was increased on Feb. 16 to 2.97 percent of gross domestic product from 2.77 percent forecast in December after Jonathan was forced to backtrack on scrapping fuel subsidies. The government plans to cut spending on administration, training, transportation and other programs to keep the deficit below 3 percent, according to the Finance Ministry.

Government Borrowing

Sovereign guarantees will reduce the need for the government to borrow directly from capital markets, Oniha said.

The Finance Ministry said in its December budget plan it will borrow 794 billion naira on the local capital market in 2012. The DMO twice postponed its monthly bond auctions this year as borrowing costs increased. The central bank raised its benchmark interest rate by 6 percentage points to a record 12 percent since September 2010.

“In view of the high interest rate environment, occasioned by tight monetary policy stance, a moderation in government borrowing would be positive,” Central Bank of Nigeria Governor Lamido Sanusi said on March 20. Government debt stood at 17.8 percent of gross domestic product in 2011, while the ratio of debt-service to government revenue was 19.1 percent, he said.

The yield on Nigeria’s $500 million of Eurobonds due 2021 was at a record low of 5.4 percent yesterday, 80 basis points lower since the beginning of the year.

To contact the reporter on this story: Emele Onu in Lagos at eonu1@bloomberg.net

To contact the editor responsible for this story: Dulue Mbachu at dmbachu@bloomberg.net