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The Market Today - 28 March 2019

FG plans 50:50 foreign/domestic debt spread for 2019 budget                                      

Yesterday, Zainab Ahmed, Nigeria’s Minister of Finance announced the plans of the Federal Government to fund the 2019 budget through a mix of local and international borrowing, with a focus on long-term concessionary loans. Notably, the minister also stated that the FG would be seeking to rebalance its debt portfolio to an even split between foreign and domestic loans, an adjustment to its initial plan of a 40:60 split in favor of domestic borrowings. We note that this is a continuation of the current administration’s blueprint to fund capital expenditure through borrowing, with a focus on reducing the level of more expensive local debt in favor of currently cheaper foreign debt. More concerning for the Nigerian economy however, is the government’s struggles with improving revenue, as diversification efforts have not garnered significant traction yet, with debt servicing costs eating up a large portion of the slow-growing revenue. With the blueprint seemingly tilted towards debt financing, we comment that shoring up revenues have to become a key focus for Nigeria in order to avoid a crowding out of revenue by servicing costs.                                        

Sell pressure intensifies as apathy persists                                               

Negative sentiment strengthened in the market at mid-week, with the NSE ASI recording another 67bps loss yesterday. Similarly, market activity worsened, as turnover of ₦1.4 billion printed at less than half of the 30-day average (₦3.1 billion). Market breadth remained negative with 11 advances to 21 declines. With activity remaining weak amid continued investor apathy, we expect another negative session today as investor apathy continues to drive market performance.                                         

Stock Watch: PZ lost 196bps yesterday to close at ₦10.00, its lowest price since January 2009. The stock has posted a year-to-date loss of 17%, underperforming the Consumer Goods sector (-7% ytd).          

March Bond Auction closes at 13.50% amid low sales                                         

The DMO conducted the March Bond Auction yesterday, selling ₦29 billion (₦100 billion offered) across the 5-year, 7-year and 10-year bonds, all at stop rates of 13.50% – lower than the previous month’s auction. Meanwhile, the Interbank Call rate declined 129bps to settle at 15.14%. Yesterday, the T-bills space was positive with yields declining 6bps on average. Meanwhile, buy interest prevailed in the bond market despite the auction, with average yields on benchmark bonds declining 11bps – an adjustment we believe was driven by the MPC’s rate cut on Wednesday. Given the low sale at the auction and subsequently lowered stop rates, we expect to see yields adjust downwards in the secondary market. Similarly, with ₦22 billion hitting the system in maturities today, we expect the CBN to conduct an OMO auction and foresee mild buy interest in the T-bills market.