The Market Today - 18 May, 2017
Nigeria to raise $3.5 billion in foreign loans to fund budget
Reports from the Budget Office indicate that Nigeria plans to raise $3.5 billion (c.₦1.068 trillion) and $4 billion (c.₦1.220 trillion) in foreign and domestic loans to fund the 2017 budget which has an estimated deficit of ₦2.21 trillion (c.2.2% of GDP). Breaking down the foreign borrowing, we see that $2 billion of the planned borrowing would come from concessionary loans while the balance of $1.5 billion would be funded through Eurobonds. We recall that to fund 2016 capital expenditure, Nigeria raised $1.5 billion in Eurobonds in Q1’17 at a weighted average yield of 7.75% amidst strong investor interest (6.8x oversubscribed). With yields on Nigeria’s Eurobonds falling in recent months (7.88% FGN FEB 2032 down c.100bps from issue), coupled with an improved outlook on oil earnings and foreign exchange liquidity at the NAFEX window, we anticipate strong investor demand for Nigeria’s Eurobonds.
Bulls prevail at midweek - ASI up 105bps
Sustaining the market rebound, the Nigerian bourse extended gains at the close of yesterday’s session as the NSE ASI rose 105bps following gains across most key sectors. We expect the strong bids observed (particularly for banking stocks) at the close of yesterday’s session to drive the NSE ASI to another positive close today.
Stock Watch: NAHCO has lost 15% in the last five sessions and currently trades at ₦2.58. The stock has returned loss of 10% ytd.
Yields trend North amidst PMA
In the secondary market, bearish trading persisted on T-bills with sell pressure most evident at the mid to long end of the curve. Similarly, there were selloffs in the bond space with yields rising on select maturities. With yields at the auction falling below secondary market levels, we foresee renewed demand in the bills market and specifically on auction bills as traders adjust positions to primary market levels. Meanwhile, given the muted demand observed in the bond space in recent times, we foresee further selloffs in today’s session
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