Nigeria confirmed on Tuesday that it has no plans to source debt from the Eurobond market this year as it shifts its focus to domestic borrowing and sourcing from concessional sources. This was confirmed by the DG of the Debt Management Office, Patience Oniha at an investor conference held on Tuesday.
The Investors Conference with the Federal Government of Nigeria was put together by CitiBank. The conference which was held online was titled COVID-19, Economic and Budgetary Update. Nairametrics listened in on the Conference Call.
Nigeria was represented by the following government officials Zainab S. Ahmed – Finance Minister, Godwin Emefiele – CBN Governor, Patience Oniha – DG DMO, Ben Akabueze – DG Budget Office, and a representative of the Hon. Minister of Health.
In responding to a question about any possibility of Nigeria selling new Eurobond issues this year she explained that focus remains to borrow from the domestic market and from concessional sources like the World Bank and IMF. She also cited the low-interest-rate environment as a major incentive for borrowing locally.
“When we saw where the market was based on the challenges we needed to address in terms of Covid-19 we planned the borrowing to be domestic and then external from concessional sources. We did not include the plan for this year to access the international market. We did not know how long this we last, what the cost will be and all the countries that came to the market were all investment-grade so we did not want to take a chance” she clarified.
She then confirmed that new Eurobond sales are not planned for this year but did not entirely rule it out. “Not for this year but certainly to go back to that market (Eurobond Market) we have to see where the levels again remember that I said borrowing in the domestic cheaper than borrowing in the international market. Having said that I haven’t seen any country in the B- rating in the market at this time” she concludes.
On whether Nigeria was seeking a debt relief from its creditors she maintained this was not the case and that the country was not seeking any debt relief. According to Oniha, “Nigeria is not looking to getting a relief from its creditors whether commercial or bilateral.” Commercial loans refer to loans sold on the foreign market like Eurobonds while bilateral loans are loans between countries like that between China and Nigeria.
Nigeria obtained a $3.4 billion Rapid Instrument Loan from the IMF in August as the impact of the Covid-19 pandemic ravaged the economy. At the same investor conference, the Minister for Finance Zainab Ahmed confirmed that the country has close to closing out a $1.5 billion World Bank facility for the Federal Government and another $1-1.5 billion for States.
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Nigeria has seen its debt profile rise to N27.4 trillion or $84 billion as at December 2019. The loans are divided into foreign at $27.6 billion or N9 trillion and domestic at N18.3 million or $56.3 billion. Nigeria’s public debt profile is likely higher than these figures when you account for the recent devaluation and net new loans obtained this year. The DMO is yet to publish the latest figures for Nigeria’s public debt in 2020. However, as at March 2020, the Federal Government had a domestic debt stock of N14.7 trillion.
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.
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.
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.”
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.
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.
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.
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.
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.
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.
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.
Why interest rates on treasury bills, bonds crashed
The yoyo between debt and equity is likely to ensue as uncertainty remains in the forex market.
The Nigerian debt market has been faced with a series of challenges, most of which were triggered by the worst pandemic recorded in human history. Its prospects in attracting foreign portfolio investors were dampened as macros on Nigeria’s economy revealed a downtrend in the market, and this trend has only worsened in the past months.
The fixed income market sustained its downward trajectory for the third consecutive month in June 2020 largely driven by excess liquidity as well as an overall scarcity of instruments in the market. Reports from several analysts indicate the demand for fixed income securities has increased considerably over the last 6 months driving down interest rates earned by investors.
Victor Silas an Investment analyst told Nairametrics about the OMO bills liquidity for the month of June. He said, “For June, fixed income rates were liquidity-driven following the ban of locals from OMO and limited investment outlets. OMO bills maturities are creating more liquidity for locals and it is finding its way to the bond market and Treasury bill.
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“The 2050 trading below 11% yield and the 364-day Treasury bill closing at 3.4%. It just tells you there are a lot of liquidity concerns for locals.”
Most foreign portfolio investors based abroad are staying out of naira debt dominated securities; this shows that Nigeria’s debt markets are now controlled by local investors.
Nigeria attracted just $67.9 million in Foreign Portfolio Investment (FPI) inflow for the month of April 2020, the lowest inflow recorded this year. A cursory look at the Central Bank data shows that FPI sharply reversed from $2.30 billion at the beginning of the year (January) to just $67.9 million inflow in April 2020. Nigeria like most emerging markets relies heavily on foreign portfolio investments to shore up its external reserves and manage its exchange rate position.
Portfolio inflow into money market instruments fell from N1.6 billion and N1.4 billion in January and February respectively to just N229 billion and N49 million in April and May respectively. On the flip side, those that still have their investment stuck in Nigeria, have stayed away from any other type of investment except money market instruments such as bonds and treasury bills. Most of the investors are waiting patiently for the central bank to fund their dollar purchase so they can exit.
Emmanuel Orji Emerging Market/ Fixed Income Trader, COMERCIO PARTNERS spoke to Nairametrics on the performance of fixed income securities in June. He said;
“Subsequently, the unexpected reduced sale at the June bond auction of NGN100 billion as against the NGN150 billion originally offered further strengthened the aggressive bullish run in the bond market.
“The bond auction closed relatively strong as a result, with a bid to cover ratio of 3.6x and rates declining by 120bps, 70bps, and 45bps to print at 8.00%, 11.00%, and 12.15% across the 3-year, 5-year, and 30-year maturities respectively. Note: BPS refers to basis points, a financial term for percentages. 100 basis point is equal to 1%.
“As a result, yields for the benchmark securities monitored declined across all maturities on a month-on-month basis, with yields of the sovereign bonds with 3-year, 5-year, 10-year and 20-year maturities declining by 332 bps, 138 bps, 96 bps, and 138 bps to close at 5.64%, 7.13%, 9.76%, and 10.05% respectively.
“Given the amount of idle PFA cash sitting in bank placement (c. NGN1.5 trillion) and the sudden weakness in demand for equities, we expect the buying interest to persist in the near term, which should drive yields lower in the bonds market.”
Nigerian fiscal stakeholders have resorted to borrowing domestically as opposed to seeking for funds abroad, another effect of the pandemic. This is expected to lead to an increase in the yields of FGN bonds in the short and mid-term horizon as the inward plan to seek funds locally intensifies.
Where this leaves equities
Concomitantly, the equities market benefitted from the apparent thirst for asset yielding investments in recent months. As yields for safer investment fell, investors shifted to the equities market taking advantage of the earning season often market by dividend payouts. Most stocks paid dividend yields in double digits following the stock market crash in March 2020.
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But by June the market sell-offs ensued with investors moving funds out to secure stakes in corporate debt securities. The yoyo between debt and equity is likely to ensue as uncertainty remains in the forex market and the country’s stimulus plans.
Some retail investors who spoke to Nairametrics insist they have abandoned the Nigerian Stock Market preferring to trade in cryptocurrencies or US stocks. The proliferation of intech supported investing apps has made cross border investing easier providing access to market far beyond the shores of Nigeria.