Nigeria naira at record black market low despite successful Eurobond sale

The West African country sold $4 billion via Eurobonds last week after investors submitted bids of $12.2 billion. It is considering an additional issue.

But traders on the informal black market have shrugged off the news, citing the central bank’s ban on dollar sales to exchange bureaus in an attempt to channel demand from the unofficial market, where the naira is trading at much lower levels.

“The rise in foreign exchange reserves on the back of the recent Eurobond issuance is likely to give the central bank more space to support the naira,” said Virag Forizs, emerging markets economist at Capital Economics.

Forizs added that pressure on the black market could abate if the central bank lifts currency restrictions on imports.

Nigeria has been battling dollar shortages brought on by low oil prices, which worsened with disruptions linked to COVID-19. The central bank has devalued the currency three times since March last year, but the naira has continued to weaken.

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The currency has been hitting new lows on the black market since the central bank action. It has traded within a range on the official market, supported by the central bank.

“It’s hard to square Nigeria’s weak economic outlook with such high levels of interest in its Eurobond issuance. The appetite for Nigeria’s Eurobond is probably related to the high returns offered, and possibly to oil price developments,” Forizs said.

“With oil prices at the current levels, investors may feel more comfortable lending to Nigeria,” Forizs said.

Patience Oniha, head of the Debt Management Office, told Reuters that Nigeria’s credit story coupled with strong engagement helped it sell the dollar-denominated bond and that it was considering more sales.