[Official] JP Morgan To Kick Nigeria Off Emerging Market Bond Index

Nigeria will be phased out of JP Morgan’s Government Bond Index (GBI-EM) by the end of October, the bank said on Tuesday after warning that currency controls were making bond market transactions too complex to meet its rules.

When the global plunge in oil prices hit the naira, Nigeria sought initially to support it using currency reserves, but had to resort to market controls as pressure persisted.

The JP Morgan index has around $210 billion in assets under management benchmarked to it, supporting investor demand for the bonds it includes.

JP Morgan’s decision to phase Nigeria out of its index, which many investors track, marks the conclusion of a process initiated in January.

JP Morgan said the phase-out would take place over the month ends of September and October.

It said earlier that to stay in the index, Nigeria would have to restore liquidity to its currency market in a way that allowed foreign investors tracking the index to transact with minimal hurdles.

Nigeria became the second African country after South Africa to be listed in JP Morgan’s emerging government bond index in October 2012 after the central bank removed a restriction for foreign investors to hold government bonds for a minimum of one year before they could exit.

The index added Nigeria’s 2014, 2019, 2022 and 2024 bonds, giving Africa’s biggest economy a weight of 1.8 percent in the index.

“Foreign investors who track the GBI-EM series continue to face challenges and uncertainty while transacting in the naira due to the lack of a fully functional two-way FX market and limited transparency. As a result, Nigeria will be removed from each of the six GBI-EM indices starting Sept 30,” the bank said in a note.

The central bank had to devalue the naira and pegged it at a fixed rate against the dollar, turning trading into a one-way quote currency market whose lack of transparency angered investors and businesses.

The index provider said Nigeria would not be eligible for re-inclusion in the index for a minimum of 12 months and this was dependent upon a consistent track record of satisfying the index inclusion criteria such as a liquid currency market.