FirstBank Returns to Eurobond Market with 5-Year Issuance
First Bank of Nigeria, the largest subsidiary of First Bank of Nigeria Holding (FBNH), is set to make a swift return to the Eurobond market, with the pricing of a senior 5-year note expected in coming days, Omotola Abimbola of Chapel Hill Denham hinted.
Chapel Hill Denham Limited also recalled that the Bank completely exited the Eurobond market in 2019 when it redeemed its US$450mn 7-year Bond due 2021 two years before maturity.
FBN had earlier in 2018, called its US$300 million 7-year bond due 2020, also two years before maturity.
Analysts said FBN’s exit from the market came during a period that several Nigerian banks left the market in drove, due to lack of quality foreign currency (FCY) lending opportunity, low global interest rates environments, and expectations of currency devaluation.
In 2019, three Nigerian banks (ACCESS, FBN and ECOBANK) redeemed a total of US$1.1 billion bonds before maturity, while two bonds (DIAMOND 2019 and ZENITH 2019) matured without refinancing, and another tender offer was conducted by Zenith Bank to reduce its Eurobond obligations.
Regarding pricing, Chapel Hill Denham analysts believe that ETI 2024 is the most appropriate benchmark to price the proposed issuance by FBN.
Similar to FBN, ETI has a significant Nigeria exposure, and both are rated B- by S&P and Fitch ratings. ETI 2024 also has the longest tenor in the Nigerian banks Eurobond universe.
According to the investment firm, ETI currently trades at 7.4% yield-to-maturity (z-spread: 712bps).
It said considering that the proposed FBN bond is a senior note, the spread to US treasury at issuance will likely be close to ETI 2024, despite the longer tenor.
As a result, Chapel Hill Denham said it expects the bond to price at about 700bps – 770bps spread at issuance.
Given that the US 5-year treasury yield is currently at 0.3%, Chapel Hill Denham analysts’ expectation is that the issuance will be price between 7.3% and 8.0%.
Why is FBN raising funds and why should investors be interested:
Analysts said FBN is a strong bank with impressive track record and performance.
As one of the oldest banks in operation, it has quite a significant reach with over 750 branches, over 3,000 ATMs and boasts an impressive loan book of about N2 trillion, deposits of N4.2 trillion with a customer base of 17.7 million as at Q2 2020.
Over the last 5 years, the bank sustained profitability with an average return on equity (ROE) of 9.02%.
In terms of asset quality, analysts explained that FBN struggled with legacy loans, which saw non-performing loan (NPL) ratio ballooning to 22.5% in 2017.
However, with the implementation of its resolution strategy, the NPL figure has trended downwards to 9.3% as at Q2-2020.
FBN has about N247 billion in outstanding borrowings, of which one-third is denominated in USD.
To date, Chapel Hill Denham stated that FBN has not had any default of principal, interest or other breaches with respect to its liabilities.
“At first glance, the timing of FBN’s swift return to the market appears sub-optimal, given the low domestic interest rate environment – which makes local currency (LCY) issuance cheaper or at par with FCY borrowing – and consensus expectation of further currency adjustments in the short term.
“However, at a global investor call which held on 14 October 2020, management clarified that the decision is strategic, and geared towards providing sufficient FCY liquidity to provide the best clients solution, given the current FX liquidity challenges in Nigeria..”, analysts said.
FBNH’s net FCY position stood at about US$450 million as at Q2-2020.
A backlog of FX demands has piled up in Nigeria since March, estimated at US$2.5 billion by the CBN in August, on the back of the COVID-19 induced oil price shock and lack of FX flexibility by the regulator.
Read Also: Nigerian Banks Q3 Profits to Reflect Impacts of LDR Policy, IFRS 9
FirstBank Returns to Eurobond Market with 5-Year Issuance
