There are strong indications that Nigeria’s track record and visibility among emerging market investors, as well as the robust external balance sheet, marginal foreign debt (2.2 per cent of GDP) and large Foreign Exchange (FX) reserves ($48.5 billion) will weigh positively on the country’s $1 billion credit. Expressing this view in a research note made available to Daily Sun, Emerging Markets Strategist, Standard Bank Plc. London, Samir Gadio, said even though the country’s inability to accumulate fiscal savings (only $5.3 billion left in the ECA in May), despite the resilient oil price and the slow pace of structural reforms will be negatively perceived, Nigeria’s planned Eurobond issue presents great prospects. The Nigerian authorities embarked yesterday on their Eurobond roadshow in London which will continue in Germany and the US in coming days. While the government had announced in the recent past that the roadshow would take place this month, the key question was whether it would still go ahead after the correction in the emerging market debt space in late May/June. According to Gadio, with spreads and United States Treasury yields having backed up amid concerns over the pace of the FED’s quantitative easing programme going forward, emerging- and frontier-market Eurobonds have sold off lately. He advised that a more cautious approach would be to wait for more favourable external conditions to tap the markets after the roadshow is concluded. “Although there is no guarantee that the market will revert to the tight valuations witnessed earlier this year. In fact, the risks to US Treasury yields are now most likely to the upside as the FED will eventually begin to ease the magnitude of its quantitative easing programme,” Gadio stated. The implication he stated, is that investors will be out-of-the money in the medium-to-long run should they decide to purchase the new bond given the expected US interest rate path and somewhat limited spread compression potential. “In the short-term, an opportunistic trade would be to get filled in the primary market and exit the position in the secondary market assuming investors start pushing rates lower in the coming weeks which has generally been a successful strategy for most African Eurobonds until recently.”
Posted on: Sun, 23 Jun 2013 23:01:03 +0000
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