Access Bank’s planned $1bn Eurobond positive for financials

Nigeria’s beaten down financial sector may be seeing some reprieve as investors weigh the positive signals being sent by tier-one lender, Access Bank, which plans to sell the country’s first Eurobond in two years.
Access Bank with about N3.2 trillion in assets, released a bond prospectus on the Irish Stock Exchange, showing its plans to raise a total of $1 billion under its Global Medium Term Note Programme.
The bank which is Nigeria’s fourth-largest lender by assets, will sell an initial $350 million in five-year paper in the first tranche, people familiar with the matter tell BuisnessDay.
The road show for the bond issuance kicked off yesterday as management met with prospective foreign investors in the United States and Europe and may be signalling some emerging opportunities for financing growth and new businesses in Nigeria’s economy.
“It’s positive in the sense that it shows the bank is confident of their ability to refinance the issue. Access Bank has a comfortable dollar liquidity position (about $800million) in off balance swaps with the Central Bank of Nigeria (CBN). Hence, the bank can actually pay off the liability if they chose to. I suppose, it’ll be more financially prudent for the bank to refinance and strengthen their dollar balance sheet to take advantage of growth opportunities in the Nigerian Economy,” said Tosin Ojo, head of research at investment firm, Cardinal Stone Partners Ltd.
Access Bank currently has two series of outstanding Eurobonds – the 7.25% July 2017 ($350 million) and the 9.25% JUN 2021 ($400 million).
Yields on the bank’s 2021 bond currently trade near 13.5 percent , while the 2017’s trade near 8 percent.
Analysts say they expect yields on the proposed issue will be higher than where the 2017s currently trade.
The total outstanding value of Eurobonds issued by Nigerian banks is currently equivalent to $3.15 billion, according to data from the FMDQ, OTC daily quotation list.
Nigeria’s banking index has outperformed other sectors and the broad market this year, with a 4.7 percent gain year to date (Sept. 23), compared to a 1.38 percent fall in the NSE all share index, despite the negative impact from  macroeconomic headwinds the sector faces.
Economic slowdown and Nigeria’s restrictive foreign exchange policy has undermined domestic banks’ creditworthiness, ratings agency, Standard and Poor’s said in a June 23 report on the sector.
Earlier this month S & P cut its long-term foreign and local currency sovereign credit ratings for Nigeria to ‘B’ from ‘B+’ saying that it “estimate sector wide credit losses to likely be between 3.0 percent -3.5 percent of loans in both 2016 and 2017.”
Access Bank intends that proceeds from the bond issuance will be used for lending to investment-grade Nigerian companies, including those seeking to expand their exports, according to Herbert Wigwe, the Chief Executive Officer.
“When you are trying to raise money through debt rather than equity, it means you probably want to meet your Capital Adequacy Ratio (CAR) or you have some forward looking transactions that you want to finance. I think Access Bank is looking to position their selves, knowing that the naira cannot go any lower than where it is now, for revaluation gains from dollar inflow. This way, they would be de-risking the naira volatility,” Kyari Bukar, MD/CEO of the Central Securities Clearing System (CSCS) said.
Analysts say refinancing at current yields may push up Access Bank’s interest expense, although the potential gains may outweigh the cost.
Access Bank is rated B or its equivalent, five levels below investment grade, by S&P.