Eurobonds issued by Diamond bank and First bank are the best performing this year among dollar denominated corporate bonds raised by Nigerian Banks.
Coincidentally, these same bonds are among the riskiest eurobonds in Nigeria based on their credit rating of B- and CCC for Diamond and FBN respectively.
Diamond bank Eurobond which matures in 2019 has returned 4.33 percent year to date while First Bank Eurobond which matures in 2020 returned 2.28 percent in capital gains for investors this year excluding coupon payments. Behind them were Access Bank and another First Bank Eurobond which went up 2.11 percent and 1.17 percent respectively.
Eurobonds issued by GTBank and Zenith bank which will mature in 2018 and 2019 respectively were the worst performing eurobonds this year as the bonds posted negative returns of -1 percent and -2.25 percent. The worst performer was a Zenith Eurobond which matures in 2022. The bond was down -5.23 percent year-to-date.
This mixed performance in eurobonds is a dramatic turnaround compared to the second half of the last year where 6 out of the 8 eurobonds in the market generated positive returns for investors.
Last week marked the fourth time in the space of 12 months that the Federal Reserve Bank of America has raised interest rate. The benchmark interest rate in America is up from 1 percent last June to 2 percent today.
“This 100 percent change in rates is pressuring EM currencies as foreign investors sell off corporate bonds in risky emerging economies,” said Henry Ogbuaku, group head, Asset Management at GDL Asset Management.
Nigerian corporate eurobonds however have performed decently through this period as investor confidence appears to be stronger as the economic recovery translated into stronger financial performance by local banks.
Full year 2017 reports of Nigerian banks showed that most banks earned record profits during the year. This bottom-line growth helped to push eurobonds issued by first bank, UBA and Zenith Bank up 7.26 percent, 7.55 percent and 5.73 percent in the second half of the year 2017. Wale Okurinboye, head of research at Sigma Pension told BusinessDay by phone that after the selloff in Nigerian eurobonds during the economic recession in 2016, bargain investors began purchasing these cheaper bonds in 2017 which caused the eurobond prices to rally.
The eurobonds of First Bank and Diamond were late to the party and investors are finally picking up these bonds which were trading at big discounts thus explaining their late price rally. OKurinboye added that the rally in Eurobonds of First Bank could be attributed to improving fundamentals in the Bank.
Ogbuaku of GDL also said that the decline in the non-performing loans of First Bank over the past year could have boosted investors’ confidence in the bank.
Diamond Bank which provides one of the highest yields in the eurobond space at 8.16 percent also captured investors’ attention as the bond nears maturity next year.
Also with “GTBank eurobonds currently trading above N100, investors know that the bonds will be redeemed this August at N100 so anybody holding it right now will be looking to sell which explains the downward pressure in the eurobonds this year,” Okurinboye added.
A eurobond is a debt raised by an institution or government which is denominated in a currency other than the home currency of the country or market in which it is issued.
These bonds are frequently grouped together by the currency in which they are denominated, such as euro-dollar or euro-yen bonds. Issuance is usually handled by an international syndicate of financial institutions on behalf of the borrower, one of which may underwrite the bond, thus guaranteeing purchase of the entire issue.
These bonds could be traded by investors after they have already been issued.
