Monday April 23, 2012

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Analysis 

During the previous week, secondary market activities were affected by the postponement of the FGN primary market bonds auction. The development led to a relative slowdown of secondary market activities as traders sought to cover their short positions in view of the rescheduled auction, which led to a marginal decline in prices across all tradable maturities.
 

In our further review of the market, we note the increasing interest from Nigerian banks with respect to eurobonds. Whilst the growing interest may not be unconnected with the high interest rate regime in the domestic market, opportunities for expansion on the continent may equally be a key consideration behind the preference for raising debt capital from the international financial markets rather than the domestic market.
 

We are therefore inclined to highlight that First Bank of Nigeria Plc (FBN) and United Bank for Africa Plc (UBA) both plan to issue a US$500-million eurobond respectively in the second half of the current financial year. Meanwhile, we note that, in March 2012, FBN called the initial bond it issued in 2007. In our opinion, FBN’s decision could be as a result of the high coupon rate (9.75%) on the called bond. Therefore, in view of the current conditions of financial markets globally, and the fact that the yield to maturity of the FGN eurobond is currently at circa 5.00%, there appears to be an opportunity for a domestic issuer with acceptable credit ratings to issue bonds at rates between 5.50% and 8.00%. In this regard, the objective of price discovery, for which the FGN eurobond was issued, is being achieved (fig. 3).
 

At present, FBN’s international credit rating is B+ by S&P and Fitch respectively against the sovereign ratings of B+ and BB- respectively by both agencies. On its part, UBA’s international credit rating is B+ (Fitch). 
 

In the money markets, circa N71.19 billion treasury bills matured whilst market activities remained relatively subdued in anticipation of this week’s primary auction.
 

In the week ahead, there will be FGN bonds and treasury bills auction while the March 2012 inflation figure is expected to be released by the National Bureau of Statistics (NBS). In our opinion, the figures are expected to come out with a moderate increase when compared to that of February 2012.

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