by Rachel Savage and Chijioke Ohuocha
JOHANNESBURG/ABUJA – Nigeria’s sovereign dollar-denominated bonds rallied on Tuesday after new President Bola Tinubu said at his swearing-in that a costly fuel subsidy would be removed and the central bank should work towards a unified exchange rate.
Rating agency Moody’s said Tinubu’s readiness to confront these issues was “credit positive” but warned they risked a transitional period of higher inflation, weaker economic activity and more social discontent.
Eurobonds rose as much as 3 cents in the dollar, with the 2029 maturity at 87.25 cents by 1251 GMT. Its yield of 11.43% was the lowest since the end of January.
The naira currency hit record lows against the U.S. dollar on forward markets, with the three-month forward at 564 naira to 1 dollar, while Nigerian stocks rose 4% to a more than two-month high.
Tinubu, whose victory is being disputed in court by his main rivals, inherits record debt, foreign exchange and fuel shortages, a nearly two-decade-high inflation rate, poor power supply and falling oil production due to crude theft and underinvestment.
“The market is positive about the new president and the reform plans,” said Tajudeen Ibrahim, director of research at Nigerian investment firm Chapel Hill Denham.
Getting rid of the fuel subsidy, which cost $9.7 billion in 2022, reforming the foreign exchange market so profits can be repatriated, and raising tax revenues are all priorities for international investors, many of whom have pulled out of Nigeria in recent years.
However, Tinubu’s announcement at his swearing-in on Monday lacked details.
The 2023 budget provides for the subsidy until June 30.
“There is, however, likely to be a supplementary budget to accommodate for higher spending this year,” Netherlands-based Yvette Babb, a portfolio manager at William Blair Investment Management, said.
“This could technically accommodate additional spending on, for example, fuel subsidies, if this latest commitment proves too unpopular and or takes more time to implement.”
Tinubu enacting his election pledges “will underpin investor confidence”, South African research firm ETM Analytics said in a note.
Nigeria’s debt office said on Tuesday it would sell a new 30-year bond on the local market next month to extend maturity and boost the government’s domestic borrowing.
