Nigeria's Eurobonds Drop As Govt Freezes Petrol Price Hike

16 August 2023
Vanguard (Lagos)
By Yinka Kolawole, With Agency Report

Nigeria's eurobonds fell on Wednesday, after the government said petrol prices will not be increased, and blamed foreign exchange shortages on "gross mismanagement" at the Central Bank of Nigeria (CBN).

The 2051 maturity dropped as much as 1.7 cents on the dollar to 68.894 cents, its lowest since June 2, before recovering to trade 0.57 cents lower.

Recall that President Bola Tinubu removed the popular but costly petrol subsidy after coming to power in May and soon after devalued the naira currency, both of which were long demanded by investors, driving a rally in Nigeria's overseas bonds that peaked at the beginning of August.

Nigeria, reliant on fuel imports, is still suffering dollar shortages and petrol retailers have called for further price increases due to the weakening of the exchange rate making fuel more expensive to import.

Yvette Babb, an emerging market fixed income investor at William Blair, said: "The slowdown to the pace of reform in Nigeria, and the potential for even the reversal of some reforming steps already taken, in combination with data released by the central bank, has weighed on investor sentiment, causing a reversal of some of the outperformance of Nigerian eurobonds against its peers.

Tinubu said there would be no further petrol price increases, adding that Nigeria did not need an "upward movement of pump price in order to accommodate the market-driven reality".

Carlos de Sousa, an emerging market debt portfolio manager at Vontobel, told Reuters: "The decision is disappointing for investors. President Tinubu hit the ground running since day one of his presidency in terms of progressing fast with reforms, and now it seems like further progress will be more gradual.

"President Tinubu hit the ground running since day one of his presidency in terms of progressing fast with reforms, and now it seems like further progress will be more gradual."

Ayodeji Dawodu of investment bank BancTrust said that fuel subsidies had been widely criticised for eroding the government's finances and ability to service debt,.

"The presidency may be bowing down to pressures from labour unions and manufacturers," he added.

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