Nigeria’s $500 Eurobond’s Performance Linked to Elections

Analysts have tied the fate of Nigeria’s $500 million debut Eurobond to the outcome of the April general election, saying  a smooth electoral process is what could differentiate it from other political hotspots in the continent.

According to Reuters, appetite for the Eurobond has been lacklustre since it was floated two months ago, while a rally in the stock market in the first few weeks of the year has petered out, partly due to nervousness ahead of the April elections.

Turmoil in North Africa and the Middle East, as well as a brewing conflict closer to home in Ivory Coast, has heightened awareness of political risk and dampened appetite for emerging markets in recent weeks. Nigeria has been no exception.

Reuters revealed that 10-year Eurobond that was issued on January 28 at a 7 percent yield, has traded broadly flat at 6.9 percent despite being 2.5 times oversubscribed at launch and Nigeria’s ability to service the debt, is surprising some analysts.

“The Eurobond is likely to be more sensitive to perceptions of stability. We expect trading to be fairly cautious in the run up to elections, with potential further upside if things go smoothly,” Business Monitor International’s Alan Cameron said.

Analysts also argued that If Jonathan does not win a clear mandate and elections go into a run-off, spreads in the Eurobond could widen relative to risk-free U.S. treasuries.

“In the unlikely event that it comes down to a run-off, the country’s credit spread will probably widen since such a possibility has not been seriously priced into the bond,”Emerging Market Strategist at Standard Bank, Samir Gadio said.

They however predicted that Nigeria’s domestic bond yields are expected to continue to rise, driven largely by projections of accelerating inflation and rising government spending. Adding that overall, the country’s fundamentals look strong.

With oil prices well above $100 a barrel and foreign exchange reserves building up back again, analysts say this should provide some succor against the short-term political uncertainty.

“Nigeria should be in a relatively advantageous position in this current environment,” Head of Africa Research at Standard Chartered Bank, Razia Khan argued.

Source : Thisday