Nigeria Eurobonds Lead Emerging Market Losses as FG Stops Petrol Price Hike

On Wednesday, August 15, Nigeria's Eurobonds witnessed a significant drop after the Federal Government announced the hike in the price of petroleum and also laid the blame on shortages of foreign exchange which is termed "gross mismanagement" at the Central Bank of Nigeria (CBN).

The 2051 maturity bonds saw a significant drop of as much as 1.7 cents on the dollar to 68.894 cents. This decrease has been the lowest since June 2, before recovering to trade 0.57 cents lower.

The increase in fuel prices has been a result of the removal of fuel subsidy which Bola Tinubu alerted on his day of inauguration which caused the devaluation of the naira which were long demanded by investors thereby drifting in Nigeria's overseas bonds that rose increasingly at beginning of August.

Nigeria's reliance on fuel importation has been suffering a serious loss in dollar shortage and petrol retailers have been calling for a hike in the price of fuel due to the dip that has been occurring in exchange rate which has made fuel even more expensive due to importation.

Reactions From Analyst

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 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: “Fuel subsidies had been widely criticized for eroding the government’s finances and ability to service debt,

“The presidency may be bowing down to pressures from labor unions and manufacturers,” he added.

In a bid to save the naira, President Bola Tinubu in collaboration with the acting central bank governor Folashodun Shonubi has drafted plans to stop the devaluation of the naira. Also recall that after the meeting, Mr. Folashodun Shonubi told state house journalists that speculators of the naira will lose more if the undisclosed action is implemented.