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Allen & Overy and Arnold & Porter Kaye Scholer took the lead roles on a landmark sovereign bond issue by the Federal Republic of Nigeria that may pave the way for similar offerings by other African nations.
Arnold & Porter advised Nigeria on the heavily oversubscribed $300 million offering, while London-based legal giant Allen & Overy advised the joint lead managers: Bank of America Merrill Lynch, South Africa’s Standard Bank Group, First Bank of Nigeria Ltd. and the United Bank for Africa.
The innovative transaction represents Nigeria’s first issuance of diaspora bonds, which primarily target expatriate citizens. It is also the first time that a sovereign has issued tradable, registered bonds that are approved for distribution to retail investors on both sides of the Atlantic.
Arnold & Porter finance and disputes partner Eli Whitney Debevoise II, who led a team of lawyers across the firm’s offices in London and Washington, D.C., described the deal, which has been in the works for almost two years and was originally slated for March, as a “breakthrough” in sovereign finance.
“It is the first low denomination sovereign bond registered by the U.S. Securities and Exchange Commission and approved by the U.K. Listing Authority for distribution to retail investors,” said Debevoise, who re-joined his firm in 2010 after three years as executive director of the World Bank Group, which provides capital loans to developing countries. “Nigeria is also only the second country in sub-Saharan Africa to register bonds with the SEC; others may follow.”
The Director General of Nigeria’s Debt Management Office told local news outlet This Day that the retail instrument was offered through private banks and wealth managers, rather than institutional investors, in an attempt to appeal to a wide range of investors.
Local Nigerian counsel Olaniwun Ajayi and Banwo & Ighodalo also worked on the deal, which sought to raise funds from Nigerians living overseas in order to finance capital projects and reduce the country’s $23 billion budget deficit, caused in part by a fall in global oil prices—the nation’s primary export. Earlier this year, Nigeria completed a $1 billion Eurobond sale in a further attempt to alleviate its deepening economic malaise.
Nigeria is far from the first country to issue diaspora bonds. Israel implemented a diaspora program way back in 1951 in order to raise foreign exchange for the state, while Greece tapped up expatriate investors in 2011 in response to its debt crisis.
India has performed three separate offerings in recent years. But Ethiopia failed in an attempt to use diaspora bonds to finance a new hydroelectric dam in 2009 as investors were unconvinced the country would repay the debt. Last year Ethiopia had to refund $6.5 million to U.S. investors after it illegally sold an unregistered diaspora bond.
Arnold & Porter has a strong track record of acting on sovereign bond transactions, having advised a wide range of national issuers including Azerbaijan, Bosnia, Brazil, Colombia, Costa Rica, El Salvador, Honduras, Hungary, Israel, Kenya, Moldova, Pakistan, Panama, Trinidad and Tobago, Tunisia, Turkey, Venezuela and Yemen.
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