• By Anayo Ezugwu

AS Nigeria continues to emerge from economic recession, PricewaterhouseCoopers, PwC, expects activities at the Nigerian Stock Exchange to pick up in the equity capital markets. PwC said this may lead to an increase in domestic corporate bond issuances that is consistent with global sentiments. It also believed that cross-border investors will turn bearish on emerging market bonds, in line with rating agencies’ sentiments.

PwC, in its Nigerian Capital Market Update, said there have been no initial public offerings on the Nigerian Stock Exchange, or by Nigerian companies on foreign exchanges to date in 2017. However, it saw some further offers – Guinness Nigeria – and activity in the secondary market as Foreign Portfolio Investment, FPI, increased significantly, a positive indicator for the recovery of the Nigerian equity capital markets.

“The decline in government revenues has severely impacted budgetary obligations across the three tiers of government. The implication for the federal government was a 14 percent decline in 2016 revenues compared to 2015, resulting in a fiscal deficit of 2.2 percent of GDP (2015: 1.6 percent of GDP), the highest deficit in seven years. To finance this deficit, the federal government borrowed ₦2.2 trillion from the domestic bond market in 2016, the highest domestic borrowing in recent times. This caused corporate bond yields to increase to levels nearly equivalent to standard bank financing, which has discouraged issuers from seeking funding through the domestic capital markets.

“The domestic corporate bond market has therefore tapered in 2017 relative to activity observed between 2014 and 2016. We do however, see increased activity in the near term from large Nigerian corporate bodies looking to refinance for longer tenors, and other issuers looking to finance large projects with the support of guarantees from new players in the market such as InfraCredit, established by the Nigeria Sovereign Investment Authority in collaboration with Guarant Co.

“Unlike the bond market, the commercial paper market in Nigeria has seen significant activity, with the largest issuance to date in 2017 by Access Bank. Issuances increased 137 percent in value between 2015 and 2016 and as at second quarter of 2017, make up about 58 percent of the value of 2016 issuances. CP issuers represent diverse sectors – REITs, banking and FMCG companies – signalling increased interest across all Nigerian corporate.”

According to PwC, corporate Eurobond issuances at second quarter of 2017 of $1.0 billion (₦305.2 billion) were almost at par with 2016 issuances of $1.1 billion (₦277.9 billion). It stated that between 2016 and 2017, two new Nigerian issuers accessed the Eurobond market for the first time, IHS in 2016 and UBA in 2017, signalling continued global investor appetite for Nigerian assets despite the economic recession.

PwC expects more Nigerian issuers to access the Eurobond market as the Nigerian economy stabilises following the emergence from the recession and as Naira volatility subsides.

“In the second quarter of 2017, Nigeria’s economy returned to positive growth as real gross domestic product, GDP, increased by 0.55 percent compared to second quarter of 2016, after five consecutive quarters of negative growth.

This recovery was driven by improvements in the oil sector (8.8 percent of GDP), which expanded for the first time in seven quarters. Although growth in the non-oil sector slowed, the performance of key sub-sectors such as trade and manufacturing suggests the economy continues to benefit from improved liquidity in the foreign exchange market.

“This renewed confidence has resulted in a rebound in foreign investments with Foreign Direct Investment, FDI, and Foreign Portfolio Investment, FPI, up 49 percent and 128 percent, respectively in second quarter of 2017 as compared to the same period in the prior year.

Similarly, investor appetite for equities has increased with the Nigerian Stock Exchange All Share Index, NSEASI, 24.4 percent higher between January and June 2017, recovering from a 6.2 percent contraction between January and December 2016,” PwC stated.

– Sept. 29, 2017 @ 10:51 GMT /