Amidst the oversubscription of Nigeria’s Eurobond by the tune of $3 billion, Foreign investors are avoiding Nigeria’s Naira denominated fixed income investment instrument, and opting for the Dollar denominated Eurobond instead. The country floated a $500 million Eurobond last Wednesday which was oversubscribed to the tune of $3 billion.
According to Bloomberg, Lutz Roehmeyer, a fund manager at Landesbank Berlin Investment GmbH, which owns Nigerian dollar debt but has sold all its naira securities, said the Eurobond was positive for Nigeria.
“But it is almost impossible to unwind naira trades. That’s why we completely exited local bonds. As long as foreigners like me think in this way, nobody will invest in the local currency.”
The development among investors has greatly influenced the Nigerian stock negatively as the oversubscribed Eurobond has earned investors a total of 14 percent in the past year. Investors holding the naira-denominated notes were reported to have lost 37 percent in dollar terms during the year in review.
“You just have to look at what Egypt did when it floated the pound in November. That would do the trick in Nigeria. If the naira was free floating, like in Egypt it would overshoot, maybe to 450 per dollar or even 500. Then, it would appreciate to about 400.”
Reacting to the economic status of the country, the International Monetary Fund on Thursday advised the country to change its currency regime.
It added that authorities should “remove the remaining restrictions and multiple currency practices, thus unifying the foreign-exchange market and helping regain investor confidence.”