FG May Issue Eurobond to Refinance $500m Maturing Bond in Q1-CHD

Following the Nigeria’s government plans to refinance proposed budget deficit with new borrowings estimated at ₦4.28 trillion, Chapel Hill Denham limited (CHD) said there is strong possibility for Eurobond issuance in the first quarter (Q1) of 2021.

A total sum of $500 million Eurobond is expected to mature in January 2021, this comes as government revenues stand down due to low oil price.

In addition, foreign exchange rates have been under pressure following declining inflow into external reserves as foreign investors sentiments on the economy remain weak.

The investment firm rational expectation on Eurobond issuance may not be unconnected with the fact that the nation’s external reserves has remained below $36 billion.

MarketForces reported that the Central Bank of Nigeria projected that foreign reserve may close fiscal year 2020 at $29.9 billion.

Dearth of foreign inflow has been major factor responsible for exchange rates pressure, with large spread between official and parallel market rates.

Earlier Thursday, President Muhammadu Buhari submitted the 2021 budget proposal to a joint session of the National Assembly.

Analysts at Chapel Hill Denham noted there were no major changes from the version of the budget approved by Federal Execute Council.

However, spending plan document shows that the Budget Office raised the oil price and production assumptions to US$40 per barrel and 1.86 million barrel per day (mbpd) – including condensates- from US$28 per barrel and 1.80mbpd the revised 2020 budget, respectively.

Similarly, foreign exchange rate assumption was raised to ₦379 from ₦360.

Chapel Hill explained that consequent on the upward adjustments of revenue assumptions, revenue is expected to increase by 35% to ₦7.9 trillion.

Meanwhile expenditure is projected to expand by 21% to ₦13.08 trillion.

Analysts said this implies a 4.5% increase in fiscal deficit to ₦5.2 trillion or 3.64% of GDP from ₦5.0 trillion or 3.57% of GDP in the revised 2020 budget.

The government plans to finance the deficit with new borrowings estimated at ₦4.28 trillion, ₦205.15 billion from privatization proceeds and ₦709.69 billion in drawdowns on multi/bi-lateral loans.

“The split between domestic and foreign borrowing is yet to be disclosed.

“However, we think there is a strong possibility of Eurobond issuances in Q1-2021 to re-finance a US$500mn maturing bond in January, and also part-finance the 2021 budget.”, Chapel Hill stated

Meanwhile, interbank money market rates eased further Thursday, on the back of robust liquidity in the financial system, which was further boosted by a large OMO maturity estimated at ₦567.69 billion.

The Open Buy Back (OBB) and Overnight (OVN) rates declined marginally by 10bps and 8bps to 0.65% and 1.30% respectively.

Chapel Hill Denham expects funding pressures to resurface tomorrow as banks provision for the retail FX auction.

Also, the fixed income market sustained bullish momentum on the back of robust financial system liquidity.

Front end rates declined, with the Nigerian Treasury Bill and OMO benchmark curves compressing by an average of 3bps and 12bps to 1.42% and 1.67% respectively.

Similarly, analysts said bond yields closed lower by an average of 15bps across benchmark tenors to 6.03%.

This was driven by bullish sentiments at the short (-1bp to 3.17%), intermediate (-27bps to 6.28%) and long (-16bps to 8.59%) end of the bond yield curve.

Foreign exchange rate continued to trade within a tight band at the regulated segments of the FX market.

The local currency strengthened marginally by 4bps or 17kobo to ₦385.83 in the I&E Window and closing flat at 379.00 in the official window.

Naira also gained ₦1 or 0.2% in the parallel market to ₦457.00. The external reserves remained flat at US$35.73bn on 07 October 2020.