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Debt Securities

Nigeria’s Eurobond yield hit 12.8% as investors flee emerging markets

Nigeria’s 2049 Eurobond Yields traded at a yield of 12.81% as prices fell to $72.94. The coupon rate for this loan about 9.2%.

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The State of the Nigerian Mutual Funds Industry, Nigeria's Eurobond

Nigeria’s Eurobond yields spiked to as high at 12% last week as investors fled emerging market securities in the wake of Covid-19 pandemic and the crash in oil prices.  

Higher bond yields: Nigeria’s 2049 Eurobond Yields traded at a yield of 12.81% as prices fell to $72.94. The coupon rate for this loan about 9.2%. The shorter ended 2021, 28th January bond yields sold for $97.29 with a yield of 10.09%. Bond yields are inversely correlated to their underlying prices. The lower the price of a bond the higher the yields. A falling bond price is often associated with higher risk consideration.

Nigeria's Eurobond

Nigeria’s Eurobond Rates

Country Risk: As Oil prices continue to fall, foreign portfolio investors are worried about the government’s ability to meet its credit obligations without seeking refinancing of the bonds. Nigeria currently has over $29 billion in external loans with the Eurobond component stated at $10.8 billion as of September 2019. The country’s revenue situation could affect its ability to repay its bond obligation forcing a sell-off and increasing bond yields.

Downgrades: Earlier in the month, one of the global rating firms, Fitch downgraded Nigeria’s credit ratings. This rating agency explained the downgrade was mostly due to the decrease in the country’s external reserve from $45.1 billion as of June 30, 2019, to about $38 billion as of January 31, 2020. The decline in the external reserve has persisted as it now $36.18 billion. It is also expected to fall further with the crash in oil prices below $30 per barrel.

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In December 2019, Fitch Ratings revised the outlook on Nigeria’s long term foreign-currency issuer default rating (IDR) to ‘Negative’ from ‘Stable’, but affirmed the country’s sovereign credit rating at B+. However, Fitch’s Middle East and Africa sovereign analyst, Jan Friederich, hinted that the B+ rating could be revised downwards to negative.

Nigeria's Eurobond

FGN Bond Yields

Eurobond Yields vs FGN Bonds Vs Corporate Bonds: Analysts also noted that Nigeria’s Eurobonds now traded at almost the same yields as FGN Bonds while some Corporate Bonds yields even had lower yields than Eurobonds.

Nigeria's Eurobond

Eurobond Yields

This is somewhat of an anomaly as investors often price local bond securities at a higher yield when compared to foreign currency denominated bonds. This perhaps shows just how spooked foreign portfolio investors are about Nigeria’s revenue situation.

Buying Opportunity? The latest devaluation of the naira may have also presented a buying opportunity for Nigerian Eurobonds. With yields as high as 12%, investors will be in line for significant upside if prices rally later in the year. While the risks still remain high, a bond rally could ensue once the Covid-19 virus is contained and oil prices stabilize. This is not taking into consideration another possible round of devaluation later in the year.

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Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

1 Comment

1 Comment

  1. Seun

    April 23, 2020 at 7:37 am

    Many thanks for the insights.
    Is it advisable to hold on to Eurobond investments in the hope that there will be a turnaround? Or should one just cut their losses and liquidate instead?

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Debt Securities

Debt Management Office resumes FGN savings bond offer on August 10

The DMO assured that the Bond offers were going to resume when the conditions change.

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Debt Management Office resumes FGN savings bond offer on August 10, Eurobonds, Patience Oniha, DMO, External debt servicing

The Debt Management Office (DMO) has announced the resumption of its Federal Government of Nigeria (FGN) Savings Bond Offer with effect from August 10, 2020.

This disclosure was made in a press statement by the Debt Management Office to the general public.

The DMO was earlier forced to suspend the monthly offers of the FGN Savings Bond in April 2020, due to the lockdown and restrictions placed on social and economic activities as part of measures implemented by government to contain the spread of the Coronavirus pandemic.

READ ALSO: FG responsible for 80% of Nigeria’s N25.7 trillion debt profile 

The statement from the Debt Management Office said:

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“The DMO wishes to announce the resumption of its offer of the federal government of Nigeria savings bond (FGN savings bond) effective August 2020.

“The DMO was constrained to suspend the monthly offers of the FGN savings bond in April 2020 due to the restrictions on activities and movement as part of measures adopted by the government to curtail the spread of COVID-19.

“The offer for subscription will open on Monday, August 10, 2020 and close on Friday, August 14, 2020.’’

READ ALSO: State Governors parted with N33.9 billion to external debt deductions

The statement also encouraged investors to continue to save through the FGN Savings Bond. This is because FGN Savings Bonds attract good returns and are secure, being a Sovereign instrument. They also contribute to national development.

Nairametrics had on April 4, 2020, reported the suspension of the FGN Savings Bond offer by DMO which was scheduled for April 6 –April 10., due to the restrictions caused by the coronavirus pandemic.

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The DMO assured that the Bond offers were going to resume when the conditions change.

The DMO, however, noted that the suspension of the April 2020 Offer would not affect Coupon Payments due to investors for already issued FGN Securities, as arrangements had been made to ensure that all Coupon Payments for and redemptions of FGN Securities were made as and when due to investors’ designated accounts.

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Debt Securities

FMDQ admits Axxela funding of N11.5 billion bond on its platform

FMDQ explained that Axxela Funding 1 PLC is a special purpose vehicle incorporated by Axxela Limited.

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AFEX to partner with FMDQ and Dubai Commodities Exchange

The FMDQ Group, through its subsidiary, FMDQ Security Exchange Limited, has admitted the Axxela Funding 1 PLC N11.50 billion Series 1 Bond on its platform.

According to News Agency of Nigeria (NAN), this was disclosed by the FMDQ Group in a statement that was issued on Thursday, July 9, 2020, in Lagos.

The statement explained that FMDQ admitted the N11.5 billion Series 1 Bond, which is under the Axxela Funding N50 billion bond programme on its platform.

FMDQ explained that Axxela Funding 1 PLC is a special purpose vehicle (SPV) incorporated by Axxela Limited to raise funds through the issuance of debt securities in the domestic capital market.

READ MORE: Nigeria’s Capital Market: Equities, ETFs, Bonds and Beyond

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According to the statement, “Axxela Limited, owned by Helios Investment Partners, is a natural gas shipping company on the West African Gas Pipeline, providing unique energy solutions with presence in Nigeria and gas export operations in neighbouring West African countries.

“The admittance of the Axxela bond is testament to the opportunities which the Nigeria Debt Market Capital (DCM) avails to corporates in diverse business areas and further, to the potential of the market to support stakeholders effectively even as they carry on their activities in the face of the pandemic.

“The Axxela bond, by its listing on FMDQ, shall be admitted onto the FMDQ Daily Quotations List; thus, promoting the much-needed transparency for investors and providing a credible basis for portfolio valuation daily.

“Also, through the global visibility which the FMDQ website and systems guarantee, the corporate profile of the issuer is raised even further ahead of tapping into other opportunities in the Nigerian capital market.”

READ ALSO: NSE’s Oscar Onyema urges market operators to explore opportunities in Finance Act

The FMDQ in its statement revealed that the Nigerian Debt Capital Market plays an important role in the efficient mobilization and allocation of resources in the economy. Despite the impact of the current economic crisis, the market had continued to effectively support corporate firms looking to expand their business operations.

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Therefore, the FMDQ, in its role as a market organizer of the Nigerian Debt Capital Market, amongst others, has continued to provide stakeholders in the Nigerian capital market with a credible and robust platform for capital access, risk management and transfer of value.

This means that Axxela Series 1 Funding will have the opportunity to global visibility through FMDQ Exchange’s website and systems.

The Series 1 bond would be included in FMDQ Daily Quotations List, in order to ensure and maintain information transparency.

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Debt Securities

Covid-19: Companies raise N222 billion in capital during lockdown

Corporate organizations successfully raised at least N222.6 billion from the 24th of March till date.

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Covid-19: SBM Intel lists out industries that may be out of business post Coronavirus

The COVID-19 pandemic is unarguably the greatest disruption of recent times. Not only has the world been faced with the existence of a real-life plague, but its impact has also been felt across industries, economies, markets, and more. Yet, corporate organizations successfully raised at least N222.6 billion from the 24th of March till date, covering the toughest periods of the economic impact of the pandemic itself as well as the pandemic-induced lockdown.

Across the world, businesses and companies alike have sought out ways to curb the menace that is the pandemic through the introduction of cost-cutting measures to withstand the storm. However, in the midst of this, an array of companies have also sought out ways to raise finance to ensure their sustainability while also leveraging the relatively cheap opportunity to raise capital.

READ ALSO: NSE promotes gold as viable option in the current investment landscape

Increase in Listing

Data from the Nigerian Stock Exchange (NSE) reveals corporate bodies and the government have raised capital and facilitated secondary market trading activities worth over N1.8 trillion. A number of securities have also been listed on FMDQ. Methods used cut across Rights Issues, private placements, bond listings, etc., and they have been supposedly geared towards supporting working capital needs of the organizations, facilitating business expansion and more.

Listings over the period include; LAPO Microfinance Bank’s bond worth N6.2 Billion, NewGold ETF valued at N7 Billion, UACN Property Development Plc’s N16 Billion Rights Issue, Dangote Cement Plc’s bond worth N100 Billion, FBNQuest Merchant Bank’s Series-1 N5Bn Bond, Flour Mills’ N30 Billion Series 13 & 14 Commercial Paper programme, Primero BRT Securitisation SPV Plc bond worth N16.1Bn Bond, and the Golden Guinea Breweries Plc’s private placement of N1.2 Billion. Also listed are MTN Nigeria Communications plc’s proposed series of N50 billion and Transcorp Hotel’s N10 billion Rights Issue.

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In addition to this, several Government Bonds worth over N797 Billion have also been listed within the past few months. Other companies have also listed capital financial issues include Guinness Nigeria (N5 billion) and United Capital (N20 billion) through commercial papers, also offering low-interest rates to suit the overall trajectory of the economy.

READ MORE: Lafarge Africa hits 5 year low as NSE ends week in the red

The amounts raised

Of the various amounts listed over the same period, Flour Mills has raised N7 billion. FBNQuest Merchant Bank’s 5 billion issuance was 2.3 times oversubscribed but news reports are not clear as to how much was actually received; UACN Property Development raised N16 billion; Dangote Cement was 1.5 times oversubscribed, raising N155 billion; The Golden Guinea Breweries, Primero BRT Securitisation SPV, and NewGold ETF were all 100% subscribed at  N1.2 billion, N16.1 billion, and N7 billion respectively. United Capital raised N5.3 billion in Commercial paper issuance and N10 billion in its Series 1 Bond issuance, and LAPO Microfinance is ongoing. This brings the total amount raised in the period to at least, N222.6 billion.

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The attraction with raising capital in a COVID-19 era

The pandemic has brought about the world’s worst statistics and Nigeria is no exception with rising inflation juxtaposed with lower-than-normal interest rates – and that appears to be the catch. A common phenomenon across these bond listings is that many have been oversubscribed despite COVID-19 headwinds. In other words, with very limited opportunities available across markets, investors have rushed at many of these bonds at their comparatively low coupon rates. Given that these investments are locked at fixed interest rates, companies now have the opportunity to piggyback growth strategies on affordable capital raising. With investors, on the other hand, grappling for opportunities to shield their funds from inflation, the situation appears to take the semblance of a win-win situation.

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