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Debt buyback: Nigeria paves way to clear London Club debt

Nigeria has announced plans to clear the last of its commercial debt, taking it one step closer to entering the debt capital markets in 2007. Last year Nigeria was poised to issue its first Eurobond deal, for $1.5 billion, which was thought necessary to pay off its London Club debt. But then the government pulled the deal, realizing that the debt could be cleared from its rapidly growing international reserves. Now president Olusegun Obasanjo hopes to enter the capital markets in 2007, once his country’s remaining $912 million of London Club debt is extinguished and political uncertainties have diminished.

The London Club debt was in three parts – $1.45 billion of 2020 Brady par bonds, 1.76 million oil warrants and $512 million in promissory notes. The Brady par bonds were bought back in November 2006. Last month the sovereign announced its plans to buy back the oil warrants and promissory notes.

The cost of the oil warrants buyback is estimated at $400 million (0.4% of GDP). The warrants have generated payments of nearly $53 million a year since 2003 after the 1992 deal gave warrant owners the right to receive semi-annual payments of $15 per warrant when the price of oil rose above $28 per barrel.

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