S&P Assigns ‘B’ Rating to FG’s Planned Eurobond


Obinna Chima

Standard & Poor’s (S &P), one of the global rating agencies has assigned its ‘B’ long-term issue ratings to the proposed United States dollar-denominated Eurobonds to be issued by the federal government.

The agency in a two-paragraph statement explained that the amount and interest rate, among other details of the bond, would be determined during the placement.

The rating by S & P, came few days after Fitch Ratings assigned Nigeria’s upcoming senior unsecured USD-denominated notes a rating of ‘B+(EXP)’.

The assignment of the final ratings was contingent on the receipt of final documents materially conforming to information already reviewed.

The rating agency had explained in a statement that the expected rating was in line with Nigeria’s long-term foreign-currency issuer default rating (IDR) of ‘B+’ with a negative outlook.

The rating would be sensitive to any changes in Nigeria’s long-term foreign-currency IDR.
On 31 August 2017, Fitch affirmed Nigeria’s Long-Term Foreign-Currency IDR at ‘B+’ with a Negative Outlook. The Long-Term Local-Currency IDR is also ‘B+’ with a Negative Outlook.

The Senate had last Tuesday approved the request by the executive to raise $3billion from the international capital market (ICM) through a Eurobond or Diaspora Bond issue or a combination of both to refinance maturing domestic debts, and raise another $2.5 billion from multilateral donor institutions to fund the capital component of the 2017 budget.

The approval by the Senate followed the adoption of the recommendations of its Committee on Local and Foreign Debts chaired by Senator Shehu Sani (Kaduna, APC).

But before the loan request was approved, the Deputy President of the Senate, Senator Ike Ekweremadu, who presided over Tuesday’s plenary, had charged the DMO to monitor Nigeria’s debt profile to ensure it remains within acceptable limits.
Meanwhile, money market rates, the open buy back (OBB) and overnight rate rose 10.6 and 11.9 ppt to close at 17.8 per centand 19.8 per cent respectively last Monday.

Subsequently, on the back of an improving system liquidity which was positive at N26.1billion last Tuesday, money market rates moderated on all other sessions, closing lower last Tuesday (12.2% and 13.4% respectively), Wednesday (10.2% and 11.3% respectively) and eventually a week-low of 6.2 per cent and 6.7 per centrespectively on Thursday.
This improvement was largely on the back of Primary market repayments – open market operations (OMO) N141.7 billionand treasury bills Primary Market Auction (PMA) net balance of N0.1 billion which buoyed system liquidity balance to N297.6billion last Thursday.

However, rates surged last Friday due to an OMO auction which mopped up N66billion from the financial system.
Hence, according to a report from Afrinvest Securities Limited, the OBB and overnightrose to 26.7 per cent and 27.7 per cent lastFriday, implying a 19.5 and 19.9 ppt increase week-on-week.

The report further stated that performance in the treasury bills market was broadly bullish as average rates fell on three out of the five sessions. “The week started with sell-offs across long dated instruments as average rate (across three benchmarks we track) rose to three basis points to 17 per cent.

“However, performance was reversed on Tuesday as average rate fell 16 basis pointsto 16.8 per cent after the National Assembly granted the FGN’s request to raise external debt to refinance expensive T-bills.

“On Wednesday, rates fell further to 16.5per cent on average, but rose to 18 basis points to 16.7 per cent on Thursday, closing at same level on Friday, indicating a 27-basis decrease week-on-week,” it added.
At the PMA auction, the CBN auctioned N32.4 billion, N22.8billion and N64.7billion of the 91-day, 182-day and 364-day instruments.

Given investors’ expectation of a near term monetary easing, the 91-day and 182-day instruments were undersubscribed by 54per cent and 38 per cent while the 364-day instrument was oversubscribed by 2.2times.
Accordingly, the Central Bank of Nigeria (CBN) allotted N6 billion apiece for the 91-day and 182-day instruments while N107.9billion was allotted for the 364-day instruments at previous stop rates of 13 per cent, 15.3 per cent and 15.6 per centrespectively.

This week, they anticipated an OMO maturity of N200 billion to buoy system liquidity. “Nonetheless, we believe the outcome of the last MPC meeting for the year would dictate activities in the money market – particularly sentiment for Treasury Bills,” the report added.

However, last week, the market opened with negative system liquidity balance (N46.6 billion from a deficit of N11.6 bn last Friday) as the CBN conducted OMO sales worth N61.7 billion as well as its weekly Secondary Market InterventionSales of US$100 million.

Forex Market
In line with market expectation, the naira/dollar exchange rate was relatively stable week-on-week at the interbank market (NIFEX), Bureau De Change and parallel market segments at N329.75/$, N360/$ and N363/$ respectively.
This, according to analysts at Cowry Assets Management Limited, was amid injections by the CBN worth $195 million into the foreign exchange market of which $100 million was allocated to wholesale (SMIS),$50 million was allocated to small and medium scale enterprises and $45 million was sold for invisibles.
At the Investors & Exporters forex window (I&E), the local currency appreciated further against the dollar to N360.40/$ as at Friday.

Meanwhile, dated forward contracts at the interbank OTC segment mostly appreciated amid increase in the foreign exchange reserves – external reserves increased week-on-week by 0.75% to $34.33 billion as at Wednesday, November 15, 2017.

Also, the 1-month, 2-month, 3-month and 6- month contracts appreciated week-on-week by 0.41 per cent, 0.48 per cent, 0.47per cent and 0.49 per cent to close at N364.34/$, N369.77/$, N375.88/$ and N395.91/$ respectively.
“This week, we retain our stable outlook for the exchange rate amid sustained stability in global crude oil prices which should result in further build-up in foreign reserves as well as CBN‟s continued intervention in the various segments of the interbank foreign exchange market,” Cowry Assets analysts projected.

Bonds Market Review
Activities in the domestic bonds market remained quiet but largely positive during the week as average yield across instruments moderated on all five trading sessions.

Average yield across tenors closed at 15.18per cent on Friday, indicating a five basis points decline week-on-week.
According to Afrinvest, the bullish sentiment last week could be attributed to the approval granted by the National Assembly for the federal government to borrow US$5.5 billion in external debt.
“The shift in debt portfolio of the FGN is expected to reduce volume of domestic debt securities issuance in the near term, hence the bullish sentiment,” they stated.

This week, the Debt Management Office will be re-opening the JULY 2021 and MARCH 2027 instruments with offer amounts ranging from N45-N55 billion for each of the bonds.
As with trend, analysts anticipated that theauction would be largely successful with similar marginal rates (to previous auction) as well as higher level of subscription for the long dated bond.

Bullish sentiment returned to Sub-Saharan African Sovereign Eurobonds last week following the preceding week’s sell-off. Across all instruments, average yield fell 13basis points, 17 basis points, 23 basis points, 10 basis points, 22 basis points nine basis points, four basis points, eight basis points on the Nigerian, Ghanaian, Gabonese, Ivory Coast, Kenyan, Zambian, Senegalese and South African instruments.

Meanwhile, following the recent downgrade of Nigeria’s long-term issuer and senior unsecured debt rating by Moody’s Investors Service, one of the leading global rating agencies, has as a consequence led to the downgrade of eight Nigerian banks by the ratings agency.

It also downgraded the long-term local and foreign currency issuer ratings of Bank of Industry (BoI).
Moody’s downgraded the long-term local currency deposit and issuer ratings of four Nigerian banks – Access Bank, GTBank, UBA and Zenith Bank – to ‘B2’ from ‘B1’, as well as that of the long-term local and foreign currency issuer rating of BoI.

Moody’s last week also downgraded from ‘B2’ to ‘B3’ the long-term foreign currency deposit ratings of Access, GTBank, UBA and Zenith, Union Bank of Nigeria, FirstBank of Nigeria Limited and Sterling Bank.

A statement obtained from the ratings agency’s website Sunday, showed that it also downgraded the baseline credit assessments (BCAs) of Zenith and GTBank to ‘b2’ from ‘b1.’