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Nigerian lenders are gearing up to issue Eurobonds to shore-up capital and increase lending to the real sector of the economy.
Four deposit money banks are already indicating interest to raise money through the sale of Eurobonds this year, sources say.
“I believe there is no better time to raise capital via Eurobond than now in view of the potential hike in the global interest rate. In addition, the banks will also gain from the positive investor sentiment the Federal Government enjoyed in its recent Eurobond outings coupled with the improvement in the economy (1.92% in Q4:2017),”, Ayodeji Ebo, managing director, Afrinvest Securities limited said.
Union Bank is said to be working with Citigroup and Renaissance Capital on a planned Eurobond sale after it sold $163 million share in the fourth quarter to boost lending.
Sources say Union bank could issue up to $250 million in bonds including one in local currency. The bank, in which Atlas Mara owns a 22.1 percent stake, plans to tap opportunities to lend to agribusinesses.
Ayodele Akinwunmi, head of research, FSDH Merchant Bank Limited, said there are a lot of lending opportunities in the Agriculture sector to attract bank credits.
“A bank that accesses foreign loans for on-lending to the Agric sector should ensure that the company it is lending such money to have receivables/revenue in dollar so that there is no exchange rate risk,” Akinwunmi told BusinessDay by mail.
“Agric companies that are involved in export of commodities are good candidates for such loans.”
The agricultural space in Nigeria predominantly earns revenue in naira hence any major devaluation will distort the cash flow of the borrower.
FCMB is considering a Eurobond and Diamond Bank, with an existing $200 million Eurobond due next year, could tap markets again, a report by Reuters stated.
Fidelity Bank issued a $400 million Eurobond in October at 10.75 percent to refinance existing debt and boost lending. The tier II bank lender used the bond proceeds to fund its trade book in the fourth quarter.
Taiwo Oyedele, head, Tax and Regulatory Services, PWC, said foreign borrowing is good if it is used for the right purpose under favourable terms.
“It will help to boost our foreign reserves and reduce the pressure on the Naira. While the interest rates on foreign borrowing are generally lower. The downside is that we are effectively betting on a stable Naira exchange rate otherwise it’s a huge risk for the banks and their ultimate borrowers,” Oyedele added.
Banks are rushing to tap Eurobonds to boost lending and to refinance existing dollar debts before interest rates begin to rise further in the United States.
Jerome Powell, the new Fed Chair on Wednesday alluded to the possibility that a stronger economy could push policy makers beyond existing plans for only three hikes.
The race for more capital has also been fuelled by stricter accounting principles on how lenders recognise losses, which are likely to knock 50-200 basis points off industry capital, banking executives said.
Nigeria’s Central Bank had last month put a restriction on dividend payments for lenders with high non-performing loans and capital ratios lower than its minimum requirement.
The Nigerian government had issued $2.5 billion Eurobond sale in February to refinance local currency bonds at lower cost.
HOPE MOSES-ASHIKE
