Monday, November 06, 2017 02.42PM / fsdh Research
find below the highlights of the report:
and financial market developments in the last few months in Nigeria point to a
possible rebound of activities in the Corporate Bond Market (CBM). The recent
drop in the yields on the Federal Government of Nigeria (FGN) securities,
particularly the Nigerian Treasury Bills (NTB), creates an opportunity for the
growth of activities in the CBM.
There was a
lull in activities in the CBM as companies could not compete with the high
yields on the 364-day NTB. The average yield on the 364-day NTB between January
2017 and November 2017 stood at 22.16% with the highest yield of 23.41%
recorded in 19 April 2017.
The high yields
crowded out the corporate borrowers from the debt market.
Purchasing Managers’ Index report for the month of October 2017 shows that
economic activities in the manufacturing and non-manufacturing sectors expanded
further. The increase in the PMI is also an indication of expected business
expansion in the short-to-medium term which will require more financing.
forecasts for the Nigerian economy is that the Gross Domestic Product (GDP)
will continue to grow. Although the GDP growth rates of the International
Monetary Fund (IMF) for Nigeria from 2017 to 2020 are conservative, they are in
the positive region.
Both FSDH Research and the Budget Office
of the Federation believe the growth rates in the economy between 2017 and 2020
will remain strong, ranging from 2% to 7%. This means that more business
investments will be undertaken.
FSDH Research believes that the capital
requirement for these investments will exceed what companies can generate from
internal cash flow. These companies will need external funding and with the
expected drop in yields, corporate bond will be an attractive source of raising
non-permanent long-term capital to meet the investment needs of firms.