Nigeria Eurobonds: Foreign Investors Intensified Demand For Debt

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Akamanu Jennifer

For the second consecutive week, Nigeria’s Eurobonds traded on the London Stock Exchange appreciated in value as foreign investors intensified demand for the nation’s debt instrument.

The five-year, 5.3% $500 million JUL 12, 2018, appreciated by $.40 (yield fell to 5.29 per cent). Also, the 10-year, 6.38% $500 million JUL 12, 2023 appreciated by $.71 (yield fell to 6.09 per cent).

However, the 10-year, 6.75 % $500 million Jan. 28, 2021 lost $19 (yield rose to 3.74 percent).

This trend, according to analysts at Cowry Assets Management Company Limited, a Lagos based investment firm, is expected to continue this week.

Renewed interest

The renewed interest in Nigeria’s Eurobond on the LSE is one of the fallouts of success recorded in the $1 billion Eurobond issued by the federal government two weeks ago.

Prior to the issue, there was investor apathy to the country’s Eurobond on the LSE, resulting in two consecutive weeks of decline in prices.

This trend was, however, reversed following the federal government’s road-show for the Eurobond issue which featured presentations that revived investor’s confidence in the nation’s economy and hence the 800 percent oversubscription to the $1 billion Eurobond issue.

Similarly, performance of Nigerian Corporate Eurobonds was also broadly bullish as instruments enjoyed some positive sentiments on the domino effect of the successful issuance of the $1.00bn Nigerian Eurobond last week.

The fidelity 2018 received the most interest as yield dropped 55 basis points (bps) followed by the GUARANTY 2018 (-33bps) and FIRST BANK 2021 (-32bps) instruments. Nevertheless, the DIAMOND 2019 remains the best performing with YTD return of 13.1 per cent.

Cost of funds rises above 18%

Meanwhile, cost of funds in the interbank money markets rose for the second consecutive week, due to scarcity of funds intensified by liquidity outflows via treasury bills and FGN bond auctions.

During the week, the CBN sold N400 billion worth of treasury bills (bills) comprising N202.4 billion Primary Market Auction (PMA) and N197.6 billion Open Market Operation (OMO) bills while  the Debt Management Office (DMO) sold N160 billion FGN Bond.

These resulted to outflow of N570 billion, which erased the impact of the inflow of N200 billion through statutory allocation from Federal Accounts Allocation Committee (FAAC).

The ensuing liquidity squeeze prompted interbank interest rates to rise sharply, with interest rates on Overnight and OBB lending rising to 18.67 and 17.83 percent respectively from 12.17 and 11.33 per cent the previous week.

These increases are however expected to be reversed this week due to expectation of inflow of funds which include N198.05 billion via matured treasury bills. The nation’s foreign reserves last week maintained its upward trend rising to $29.1 billion last week Thursday from $28.76 billion the previous week. Consequently, the reserves rose by $3.26 billion.

Meanwhile the CBN moved on Friday to curb the steady depreciation of the naira in the parallel market.

Through last week, the Naira depreciated in the parallel market due to intense dollar scarcity. From N506 per dollar the previous week, the parallel market exchange rate rose to N516 at the close of business on Friday.

Foreign reserve hits $29.1bn

However to curb this trend, the apex bank met with banks’ chief executives Friday evening, with a decision to increase dollar supply to banks to meet demand for payment of university school fees and Personal Travel Allowance (PTA).

A source who attended the meeting said the CBN and the CEOs after identifying the factors behind the depreciation of the Naira, agreed on the need to boost dollar supply to meet critical foreign exchange needs.

It was gathered that the apex bank decided to increase dollar supply to meet demand for Personal Travel Allowance (PTA) and payment for University school fees According to the source, the PTA is subject to maximum of $4000 per person and can only be purchased less than five hours to the flight time of the end-user.

The dollar sale for payment of university fees is however subject to maximum of $15,000 per term.

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