Amid the foreign exchange pressure in Nigeria, Fidelity Bank has made a payment of $421 million in settlement of a Eurobond issued in 2017.
This is according to confirmation the bank’s head of investor relations, Samuel Obioha, made to Bloomberg.
It has been gathered that the bank made a transfer of the specified sum on October 13, 2022, to settle its five-year, dollar-denominated fixed-income security which was issued with a coupon of 10.75 percent in 2017, according to a document seen by Bloomberg. According to Obioha, the amount paid is inclusive of a six months coupon payment.
Emerging market economies are grappling with the effects of the strengthening US dollar which is increasing the repayment amount of dollar-denominated debt in local-currency terms. Given that the dollar has appreciated, nations with weak currencies relative to the dollar are faced with sovereign and corporate debt stress.
This is a serious issue, particularly in Nigeria with the growing level of foreign exchange scarcity.
Based on a Bloomberg report, Fidelity has a $400 million, five-year Eurobond maturing in October 2026, and the yield on it is currently about 15%, compared to 7.875% when it was issued. According to the bank’s investors head, Fidelity has no immediate plans to issue another Eurobond. He said, “We will access the market anytime the market conditions align with our business needs.”
What you should know
Investing in bonds is becoming quite challenging given the financial developments around the world today. From an investor’s side, holding long-term bonds exposes one to interest-rate risk. This arises from the possibility that the Central Bank of Nigeria will raise interest rates given the aggressive inflation in the economy. When interest rate increases, bond price falls, and this is not good for long-term bonds.
For bond issuers, there is a risk of debt stress emanating from the appreciating dollar. If issuers continue to offer dollar-denominated debt securities, repayment will become much more expensive. leading to what–in debt lingo–is called “original sin.”
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