Connect with us
nairametrics

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%.

Published

on

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.

GTBank 728 x 90

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.

GTBank 728 x 90
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.

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?

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Companies

NB Plc to raise additional N20 billion from its N100 billion Commercial Paper

Nigerian Breweries has announced the continuation of its N100 billion Commercial Paper (CP) Issuance Programme.

Published

on

dividend, Nigerian Breweries reports reduced profits for first three quarters of 2019 , Analysis: Nigeria Breweries, the glory days are gone, Nigerian Breweries to raise additional N20 billion from its N100 billion CP programme

Nigerian Breweries has announced the continuation of its N100 billion Commercial Paper (CP) Issuance Programme in a bid to raise up to N20 billion to support its short term funding needs. The company has launched Series 9 and 10 of the programme for this purpose.

This information was disclosed in a notification signed by the Company’s Secretary, Uaboi G. Agbebaku, and sent to the Nigerian Stock Exchange.

The notification reads;

“[Nigerian Breweries Plc] is pleased to inform the Nigerian Stock Exchange and the investing public of the continuation of its “CP” (Commercial Paper) programme with the launch of Series 9 and 10 of the programme.

“Series 9 of the Commercial Paper programme would be for a tenor of 180 days, while Series 10 would be for 270 days. However, the launch of the CP opens today 23rd October 2020.”

GTBank 728 x 90

(READ MORE:Nigerian Breweries stock up by 58% since August )

What you should know

According to data obtained from Financial Market Dealers Quote (FMDQ), Nigerian Breweries has raised up to N90.12 billion since the start of the year.

Deal book 300 x 250
GTBank 728 x 90
  • N52.76 billion was raised from Series 6 between February 12 to November 6, 2020.
  • N13.03 billion was raised from Series 7 from April 15 to October 14, 2020.
  • N24.33 billion was raised from Series 8 from April 15 to January 8, 2021.
  • The recent issuance of the Series 9 and 10 CP will bring the total funds raised to N110.12 billion.

Why it matters

  • The CP will help the company navigate through the recent impact of COVID-19 and other trade disruptions.
  • The programme will strengthen the balance sheet of the company, and enable the brewer to execute its plans while delivering value to customers and creating wealth for shareholders,
  • In like manner, the CP programme is expected to provide opportunities for non-equity investors to invest in the company and support its cost management initiatives.

Continue Reading

Debt Securities

Commercial Paper value appreciates by N243 billion YOY, hits N539.8 billion in H1, 2020

Commercial Paper value appreciated by 81.9% to N539.8 billion in 45 issuances as of H1, 2020.

Published

on

Commercial Paper value appreciates by N243 billion YOY, hits N539.8 billion in H1, 2020, Financial literacy campaign in Nigeria, Securities and Exchange Commission, National Insurance Commission, Dantata Success & Profitable Company

Commercial Paper value hits N539.8 billion as of June 2020, as the value appreciated by 81.9% from N296.8 billion in 44 issuances as of H1, 2019 to N539.8 billion in 45 issuances as of H1, 2020. This is according to a recent report by PWC titled, “Nigeria Capital Market Update.”

READ: CBN invests over N120 billion on 320,000 farmers across CTG within four years

As regards industry spread, the financial services sector accounted for 32% of the proceeds raised as of H1 2020, followed by the consumer goods sector representing 26% of total proceeds. ICT raised 19% and Industrial goods contributed 18%.

READ: Zenith Bank’s Profit After Tax in H1,2020 rises by 16.8% to N103.8 billion

In terms of yearly appreciation, Commercial Paper value has maintained an upward trend, recording N114 billion as of the end of 2016, N221 billion in 2017, N402 billion in 2018, and N540 billion in H1, 2020.

GTBank 728 x 90

What this means

Activities in the Commercial Paper market maintained its upward trajectory as more blue-chip companies continue to access short term funding from a diversified investor base, through the capital market and on favorable terms.

READ: TradeDepot raises $10 million in pre-Series B equity round

GTBank 728 x 90

What you should know

Commercial Paper is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities. Maturities typically last several days and rarely range longer than 270 days.

It is usually issued at a discount from face value and reflects prevailing market interest rates.

Explore Data on the Nairametrics Research Website

Use Advanced Financial Calculators on Nairametrics

Jaiz bank ads
Continue Reading

Debt Securities

Nigerian Treasury Bills drop to 2% per annum

The latest data from Nigeria’s Treasury bill auction shows that Nigeria’s 364-day reduced by 2%.

Published

on

The latest data from Nigeria’s Treasury bill auction shows that Nigeria’s 364-day reduced by 2%. On the other hand, Stop rates moderated slightly for the 91-day tenors and 182-day tenors. The 91-day bills had stop rates of 1 % and 182-day bills also went by 1%.

READ: Real estate: Experts lament over challenges in the industry

At the auction, the Debt Management Office (DMO) sold N12.76 billion on the 91-day paper, N4.5 billion on the 182-day, and N107.6 billion on the 364-day bill despite huge demand from Investors.

READ: PIB; Will the jinx be broken this time around?

GTBank 728 x 90

READ: Safest, regulated Cryptocurrency, Arcoin backed by U.S. Treasury securities

What you need to know

Basically, when the government goes to the financial markets to raise money, it can do it by issuing two types of debt instruments – Treasury Bills and Government Bonds. Treasury bills are issued when the government needs money for a short period, while Bonds are issued when it needs debt for more than say five years.

GTBank 728 x 90
  • The issuance of treasury bills is also used as a mechanism to control the circulation of funds in the economy.
  • Treasury bills have a face value of a certain amount, which is what they are actually worth.
  • However, they are sold for less. For example, a bill may be worth N10,000, but you would buy it for N9,600.
  • Every bill has a specified maturity date, which is when you receive the money back.
  • The government then pays you the full price of the bill (in this case N10,000), giving you the opportunity to earn N400 from your investment. The amount that you earn is considered as the interest, or your payment for lending money to the government.
  • The difference between the value of the bill and the amount you pay for it is called the discount rate and it is set as a percentage.

READ: Where to invest your N5m to N500m safely and securely

READ: National Assembly approves Federal Government’s plan to borrow $11 billion in 2021

What they are saying

Peter Omoregie, CFA, Head Proprietary Trading at CardinalStone Partners Limited, in a phone interview with Nairametrics, explained why investors oversubscribed Nigeria’s Treasury bills in spite of low rates.

“The CBN continues with de-leveraging its balance sheet and favoring its growth policies over the attraction of FPI money, which is good for businesses and the country at large. Surprisingly, we had a huge subscription on the long end at these low rates. The local institutional investors are addicted to Tbills like a junkie on cocaine, they don’t know how or when to stop.”

Jaiz bank ads

READ: Real Estate Developers express fear over selection process of CBN’s N200 billion Housing Fund

Fidelity ads

READ: COVID-19: How CBN policies helped prevent the collapse of the Nigerian economy – Oscar Onyema

Why this matters

The massive disparity between the subscriptions and the offers recorded suggests investors are willing to earn a negative real return, compared to the higher risk in other assets such as stocks and real estate. Basically, the CBN sells T-bills on a bi-weekly basis to investors and it is one of the safest investments available. Interests are paid upfront and the principal paid in full upon maturity.

Explore Data on the Nairametrics Research Website

Continue Reading
Advertisement
Advertisement
Advertisement
ikeja electric
Advertisement
Advertisement
Patricia
Advertisement
FCMB ads
Advertisement
IZIKJON
Advertisement
Fidelity ads
Advertisement
first bank
Advertisement
bitad
Advertisement
Stallion ads
Advertisement
financial calculator
Advertisement
deals book
Advertisement
app
Advertisement