FREE

The Market Today - 15 November 2017

FG receives approval to raise $5.5 billion Eurobond                                             

The Senate has approved the Federal Government’s (FG) plans to raise $5.5 billion in Eurobonds. The proposed borrowing is composed of $2.5 billion to fund the 2017 Budget and $3 billion to re-finance a portion of the country’s outstanding T-bills. Should the plans be successful, Eurobonds would constitute 42% of Nigeria’s external debt stock, compared to 21% at the end of Q3’17. The Senate backed the FG view that the foreign loans would help reduce Nigeria’s borrowing costs as the Eurobonds would likely be raised at lower interest rates than those available in the domestic market. Whilst we share the view of lower interest rates, we highlight that potential currency depreciation offers a significant downside to foreign borrowing as it would bloat the real (naira) cost of servicing debt – as observed between 2015 and 2016 when Nigeria’s external debt stock jumped by 65% following severe currency depreciation. Nonetheless, we are cautiously optimistic that successful borrowing efforts would catalyze fiscal activities and ease pressure in the domestic debt market, both of which should aid stronger economic recovery.                                        

Sizable selloffs rock the Nigerian Equity market                                       

Bears held a tight grip on the Nigerian bourse in yesterday’s session, as notable selloffs recorded across major sectors on the exchange steered the NSE ASI 96bps lower. With bearish sentiment visibly dominating trading on the stock exchange since week open, we expect another downbeat session today albeit with softer selloffs as the week progresses.                                     

Stock Watch: FO has gained 22% over the last five sessions. The stock currently trades at ₦48.62, significantly below our target price of ₦84.43, and has returned -42% Ytd. The stock was deleted from the MSCI Frontier Index along with three other stocks (GUINNESS, PZ and FBNH) effective from November 30, 2017. Whilst the other three stocks were downgraded to the small cap index, FO was completely deleted from all MSCI Indices.                                    

Senate’s Eurobond approval spurs upbeat bond market                                      

The CBN conducted an OMO auction yesterday, offering ₦20 billion and ₦80 billion on the 93DTM and 177DTM bills respectively. The apex bank eventually sold c.₦19 billion across both maturities at stop rates of 16.00% and 17.80% (effective yield: 16.68% and 19.48%) respectively. Sentiment in the T-bills market remained positive, with yields declining 22bps on average. Whilst the bond market opened the day on a quiet note, news flow surrounding Senate’s approval of the $5.5 billion Eurobond sparked mild buying across the bond space as trading progressed. With rates at today’s T-bills PMA expected to close lower than current secondary market levels, we foresee modest yield moderation on short-mid dated bills (secondary market yield levels are currently elevated in this space). Furthermore, we expect the anticipation of lower supply in the fixed income market following Senate’s approval of the $5.5 billion Eurobond to support upbeat sentiment in the bond market.