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First Bank to Reenter Nigeria’s Eurobond Market amid Low Interest Rate Environment

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First Bank of Nigeria, a subsidiary of First Bank Holdings, is set to re-enter the Eurobond market as it wants to sell five-year debt even amid a low domestic interest rate environment.

First Bank of Nigeria (FBN) says the proceeds from the issue will be used to strengthen working capital and make sufficient foreign currency (FCY) liquidity to clients.

This is the first Eurobond by a Nigerian bank since 2019 when lenders exited the debt market 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 $1.1 billion bonds before maturity, according to data compiled by Chapel Denham Limited

“Two bonds (DIAMOND 2019 and ZENITH 2019) matured without refinancing, and another tender offer was conducted by Zenith Bank to reduce its Eurobond obligations,” said analysts at Chapel Hill Denham.

FBN exited the Euro bond market in 2019 when it redeemed its $450m million 7-year Bond due 2021 two years before maturity.

Analysts at Chapel Hill Limited said they expect the bond to price at 700 basis points (bps) –700 bps spread at issuance.

“Given that the United States 5-year treasury yield is currently at 0.3 percent, we expect the issuance to price between 7.3 percent and 8.0 percent,” said analysts at Chapel Hill Denham Limited.

Nigeria, Africa’s largest economy, has Eurobond outstanding of $11.20 billion, and the government said it will avoid commercial borrowing because it is expensive.

Nigerian Treasury Bill Yield (NBT) crashed to an all low following the decision by the central bank in October 2019 to exclude non bank locals from its Open Market Operations (OMO).

A low interest rate environment predicated by the dovish tone of the central bank that cut monetary policy rate at its last MPC meeting has forced investors to park their money equity.

Consequently, the Nigerian Stock Exchange Main-Board Index was up 5.63 percent, the best performance since March when the coronavirus pandemic stoked a severe stock market rout.

Investors should be interested in FBN issuance because the lender has a strong balance and there has been an improvement in Non-performing Loans (NPLs).

The lender’s net income increased by 23.83 percent to N35.64 billion as at June 2020, the largest expansion at the bottom line (profit) among Tier 1 banks.

As a result of the implementation of its resolution strategy, the NPL figure has trended downwards to 8.80 percent as at the second quarter of (Q2-2020) from 9.90 percent as at December 2019.

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