UPDATE 2-Nigeria sees Eurobond, wealth fund before polls

Fri Jan 7, 2011 8:50am EST

Related Topics

* Sovereign wealth fund bill to pass under this government

* Eurobond planned to go to market in 2-3 weeks

(Adds quotes, detail on spending plans)

By Nick Tattersall

LAGOS, Jan 7 (Reuters) - Nigeria plans to go ahead with its delayed $500 million debut Eurobond in two to three weeks and expects a bill to create a sovereign wealth fund to pass under the current administration, the finance minister said on Friday.

Africa's top crude oil exporter first announced plans to borrow in the international bond market in September 2008 but has put the issue on hold several times, most recently in December, citing adverse market conditions.

"Very soon, in the next two to three weeks, we will be going ... to the market with the $500 million Eurobond," Finance Minister Olusegun Aganga told a briefing with journalists, adding roadshows were planned in the United States and Europe.

"We have a date ... it is going to be very soon."

The aim of the 10-year bond is to set a benchmark in the global market for Nigeria rather than to raise funds, meaning the pricing is considered more important than the timing.

Nigeria last year appointed Deutsche Bank (DBKGn.DE) and Citigroup (C.N) as bookrunners for the Eurobond and named Barclays Capital (BARC.L) and FBN Capital, a subsidiary of Nigeria's First Bank FIRSTBA.LG, as its financial advisers.

It had planned to take a roadshow to the United States in December but postponed the issue due partly to volatility in global markets caused by the Greek and Irish debt crises.

Analysts have grown increasingly concerned about the state of the public finances in Africa's third-biggest economy, particularly as presidential and parliamentary elections in April approach and costly campaigns get under way.

But most analysts say the relatively small size of the bond issue, combined with appetite for high-yielding assets and a paucity of West African debt issues, means investors would be ready to shrug off those short-term risks.

Aganga and Citi's Chief Executive Vikram Pandit have said they expect significant demand for the issue.

WEALTH FUND

President Goodluck Jonathan has come under criticism from his main election rival, former Vice President Atiku Abubakar, over the state of Nigeria's finances and plans for "excessive borrowing" in this year's budget. [ID:nLDE7051EH]

Despite higher oil prices and output, Nigeria's foreign reserves of $33 billion were down almost a quarter on a year earlier by the start of December and the 2010 budget deficit is expected to have topped 6 percent of GDP. [ID:nL01902541]

The excess crude account (ECA), into which Nigeria is meant to save oil revenues above a benchmark price, has fallen to $300 million from $20 billion four years ago.

Aganga defended the 2011 budget -- which represents a drop in approved spending over 2010 -- saying the government was already taking steps to rein in recurrent expenditure and that comprehensive audits of bodies including state-run oil company NNPC were underway to ensure leakages were plugged.

He said the lower reserves were a result of maintaining a stable exchange rate in the face of increased forex demand, spending on power projects and the allocation of $1 billion of seed funding for a sovereign wealth fund to replace the ECA.

A bill before parliament to create the fund should be passed before the April elections, he said.

"I expect and hope that we will get the bill passed before the end of this administration ... I think it will be one of our major achievements as a country," Aganga said.

The fund is meant to divert more of Nigeria's revenues towards badly needed infrastructure development, save for future generations, and establish a financial reserve to weather economic downturns.

It is hoped that the fund will create a much firmer legal framework for the management of Nigeria's oil wealth than the ECA, disputes over whose constitutional legality make it difficult for the federal government to defend the savings from the country's 36 cash-hungry state governments. (Writing by Joe Brock; editing by Stephen Nisbet and Susan Fenton)

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