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Breakfast Report - 27 January, 2020

The Federal Government, through the National Economic Council (NEC), has indicated its intention to borrow ₦2 trillion from the ₦10 trillion pension fund base to fund infrastructure projects, targeted at power sector, rail and road developments. Given that the Federal Government has struggled over the years to meet its infrastructural expectations due to revenue and execution constraints—with capex implementation hovering at an average of c.60% over the last five years—the infrastructure bond comes as a life-line. While the lending rate remains unclear, it is most likely that the funds would be borrowed at favourable levels relative to current rates given the low-yield terrain that have existed since October. Also, demand for the bond should be very high, given the OMO restriction on local non-bank investors has created a dearth in attractive alternatives. Currently, there are two infrastructure bonds issued by the FGN Roads Sukuk Company at 16.47% and 15.47% respectively for the construction of several economically important roads across the country which would mature in 2025/2026. However, this seems a favourable time for government borrowing seeing as yields have been beaten down well below inflation levels.The Federal Government, through the National Economic Council (NEC), has indicated its intention to borrow ₦2 trillion from the ₦10 trillion pension fund base to fund infrastructure projects, targeted at power sector, rail and road developments. Given that the Federal Government has struggled over the years to meet its infrastructural expectations due to revenue and execution constraints—with capex implementation hovering at an average of c.60% over the last five years—the infrastructure bond comes as a life-line. While the lending rate remains unclear, it is most likely that the funds would be borrowed at favourable levels relative to current rates given the low-yield terrain that have existed since October. Also, demand for the bond should be very high, given the OMO restriction on local non-bank investors has created a dearth in attractive alternatives. Currently, there are two infrastructure bonds issued by the FGN Roads Sukuk Company at 16.47% and 15.47% respectively for the construction of several economically important roads across the country which would mature in 2025/2026. However, this seems a favourable time for government borrowing seeing as yields have been beaten down well below inflation levels. Equity: With some significant gains witnessed in the Industrial Goods sector, as well as some mild profit taking in other sectors such as Banking and Consumer Goods, we expect a mixed start to trading this week, amidst lukewarm investor sentiment.
Stock Watch: With the continued impressive performance recorded on Friday, BETAGLAS gained 11.39% to close at ₦70.00. The stock has gained 30.11% YTD.

Fixed Income: Next week, we expect demand to be driven by healthy system liquidity across all markets. That said, we expect weak yield levels to contain demand in the NTB space.