Nigerian firms may struggle to repay debt if dollar shortages persist


President Muhammadu Buhari of Nigeria
Already feeling the pinch from slumping oil prices and slowing economic growth, Nigerian companies are finding it increasingly hard to get hold of foreign currency due to central bank restrictions and may struggle to repay their debts.
Yields on a number of dollar corporate bonds have risen close to record highs this week, reflecting investors’ anxiety despite an assertion by Nigeria’s richest businessman that no borrower will default due to the currency shortage.
Since 2007, Nigerian financial and energy firms such as FBN Holdings and Seven Energy have issued more than $5 billion of dollar-denominated debt on international capital markets, including almost $3 billion in Eurobonds since the start of 2014, according to Thomson Reuters data.
But storm clouds have been gathering over Africa’s top oil exporter and biggest economy as benchmark crude has again fallen below $50 a barrel, less than half the mid-2014 level.
Plunging energy revenues, which make up 70 percent of government income and 90 percent of foreign currency earnings, have hit public finances and the naira. It has lost around 15 percent in the past year, with devaluations in November and February before Nigeria pegged the national currency.
Companies across the board have started feeling the dollar shortage due to restrictions imposed by the central bank to halt the naira’s fall and preserve its foreign currency reserves.
The foreign currency rationing is hurting. “This is an enormous problem for the organizations … which have issued Eurobonds but also some of the more local corporates who are in the manufacturing business, trying to access dollars to get the interest payments made on time,” said Angus Downie, head of economic research at regional lender Ecobank.
“If the oil price does not rise soon for some companies that have borrowed in dollars, they will struggle to make payments and the end …Read More

Source:: PM Newspaper