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The Market Today - 21 November 2017

$3 billion Eurobond launch imminent                                         

The Debt Management Office of Nigeria has given guidance on the pricing of its planned $3 billion Eurobond issue. The notes will be split into a $1.5 billion 10-year series and a $1.5 billion 30-year series with respective interest rates guidance of 6.500% and 7.625%. We note that despite higher global interest rates and a ratings downgrade from Moody’s, the rate guidance comes below the yield of 7.785% that the 15-year Eurobond was issued at in Q1’17 (currently trading at 6.77%), a toast to improvements in Nigeria’s macro environment. According to the DMO, the offering has attracted significant interest from global institutional investors and when issued, would be available to trade on the London Stock Exchange. The issue is expected to close within the next one week and the proceeds will be used to fund approved budget expenditure and refinancing of domestic debt. With scarce funding limiting FG fiscal spend in recent times, we expect a successful completion of the issue to help expedite capital releases and increase the pace of fiscal stimulus.                                               

ASI opens the week in positive territory – up 24bps                                     

Whilst sentiment remained downbeat across select counters on the Nigerian stock exchange, bargain hunting resurfaced on beaten down stocks – pulling the ASI to a green close at week open – up 24bps. Evidenced by the nearly even market breadth, we believe sentiment in the market remains largely mixed and foresee a sideways trading pattern on the exchange today. 

Stock Watch: After losing 8% over five sessions, ZENITHBANK has made a slight recovery, gaining 5% over the last four consecutive sessions. The stock currently trades at ₦24.98, below Vetiva target price of ₦32.05, and has returned 69% ytd.                                    

Bond market remains upbeat at week open                                        

The CBN conducted another OMO auction yesterday, offering ₦20 billion and ₦40 billion on the 87DTM and 192DTM bills respectively. However, the apex bank sold just ₦28 billion across both bills at stop rates of 16.00% and 17.80% (effective yields: 16.63% and 19.64%) respectively. Demand remained healthy in the bond market at week open as newsflow around Nigeria’s Eurobond issue continued to support buying in the space. Meanwhile T-bills market opened the week with mixed sentiment as yields on maturities trended in opposite directions. With sustained OMO mop-ups constraining system liquidity, we expect sideways trading in the T-bills market to persist. Given market expectation of leaner supply in the bond market in the near term (amidst expectation of a ramp up in Eurobond issue), we expect buying sentiment to remain dominant in the bond market this week.