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The Market Today - 16 February 2018

Foreign debt drive continues, $2.5 billion Eurobond raised                                              

Yesterday, the Federal government of Nigeria (FG) announced the successful issue of a $2.5 billion Eurobond - $1.25 billion each on 12-year and 20-year tranches. The issue is the remaining tranche of the $5.5 billion slated for issue by the Federal Government to refinance high cost and short term domestic debts (treasury bills). Whilst the 12-year series is raised at an interest rate of 7.143%, the 20-year note would bear an interest rate of 7.696% and both are repayable with a bullet repayment of the principal on maturity. Compared to the last issue in November 2017, the coupon rates appear relatively pricier – 10-year raised at 6.5%, 30-year raised at 7.6%. However, we note the relatively higher global interest rate environment since then and believe this played a role here, even as local economic conditions in Nigeria have remained relatedly stable since then. The finance minister, Mrs. Kemi Adeosun, reiterated that this Eurobond issue would further help achieve the country’s objectives of reducing the cost of its debt portfolio and ensuring the optimal mix between domestic and international debt.                                     

No dead cat bounce, ASI recovers further 103bps                                       

Sustaining the recovery from recent bear run, the Nigerian bourse recorded more gains in yesterday’s session (NSE ASI up 103bps) thanks to decent gains across most key sectors. Although the market closed higher, the relatively choppy pattern in the ASI intraday movement suggests that market sentiment remains quite fragile. As such, whilst we the bourse looks set to record another positive close today, we believe the gains would be softer than in yesterday’s session.                      

Stock Watch: JAPAULOIL has lost 22% over the last six sessions. The stock currently trades at a five-year low of ₦0.36 and has declined 28% ytd.                                  

FI market trades mixed amidst improved system liquidity                       

The CBN conducted an OMO auction yesterday, offering ₦150 billion across the 105DTM and 266DTM bills. Whilst no sale was recorded on the shorter dated bill, the apex bank sold c.₦57 billion on the longer dated bill at a stop rate of 14.40% (effective yield: 16.09%). Trading in the T-bills space yesterday was mixed with a bearish tilt as yields advanced 3bps on average. Trading was more upbeat in the bond space as yields on benchmark bonds declined 3bps on average. Given the poor sales at the OMO auction and liquidity inflow from ₦47 billion 2020 Eurobond coupon yesterday, we anticipate the CBN to revisit the market today with another OMO announcement. We expect this to further weigh on demand in the fixed income market particularly in the T-bills space.