April 6, 2020
By Afrinvest Research
The bullish run in the Nigerian Treasury Bills (“NT-Bills”) secondary market continued last week owing to improved trading activities across the mid and long end of the yield curve. The uptick in investors’ sentiments was largely supported by robust system liquidity that stemmed from a CRR refund (c. N200.0bn) on Tuesday as well as inflows from maturing Open Market Operation (“OMO”) bills (N288.6bn) on Thursday. As a result, average yield across all tenors pared to 3.2% from 3.7% the previous week with major bids occurring at the 30-Jul-20 (-143bps), 27-Aug-20 (-128bps) and 10-Sep-20 (-115bps) maturities.
On Wednesday, the CBN rolled over N95.7bn at the NT-Bills Primary Market Auction (“PMA”) compared to investors’ oversubscription of N161.4bn with the 91-day instrument enjoying the most interest at 2.1x bid to cover ratio. Consequently, stop rates across the short medium and long tenor instruments cleared lower to 2.2%, 3.2% and 4.3% respectively.
Please see a detailed summary of the PMA in the table below:
|Allotment / Issue Date||2-Apr-20||2-Apr-20||2-Apr-20|
|Offer Amount (N)||10,000,000,000||17,600,581,000||68,080,464,000|
|Total Subscription (N)||20,707,145,000||28,819,635,000||111,858,781,000|
|Range of Bid Rates (%)||2.0000 – 3.7500||3.0000 – 4.8500||3.5590 – 10.0000|
|Stop Rates (%)||2.2000||3.2000||4.3000|
|Previous Stop Rates (%)||2.3000||3.4000||4.6000|
In addition, the Apex bank conducted an OMO auction on Thursday, offering a total of N110.0bn across the 75-, 166- and 348-Day instruments. Similar to previous OMO auctions, investors interest remained lackluster as the short and medium term bills did not receive any subscription while the long term bill was grossly undersubscribed by 0.2x. Nevertheless, the CBN allotted only N4.0bn out of the N21.0bn subscription as stop rate cleared lower at 12.8% (vs.12.99% at the previous auction).
Going into the week, we expect inflows from maturing OMO bills worth N130.9bn to further bolster system liquidity (c. N731.8bn long as of Friday). Barring any CRR debit and substantial OMO sales by the Apex bank, we also expect the robust system liquidity to boost demand further as investors seek to re-invest maturing funds amidst limited money market investment options. Moreover, we anticipate more blue-chip companies would issue commercial papers due to the persistent low interest rate environment.
Please see indicative secondary market NT-Bills rates below:
|Maturity||Tenor (Days)||Rate (%) p.a.||Yield (%) p.a.|
Rates are valid till 01:45pm today (6-Apr-2020)
*Please note that the minimum subscription for T-Bills is N100, 000.00
Dangote Cement PLC Bond
Dangote Cement PLC (“Dangote Cement” or the “DCP”) is seeking to raise up to N100.0bn 5-year Fixed Rate Senior Unsecured Bonds, under its N300.0bn debt issuance programme.
Dangote Cement, Nigeria’s largest company by market capitalization on the Nigerian Stock Exchange, is the largest cement manufacturer in Sub-Saharan Africa with an installed capacity of 45.6Mta across its operations in 10 African countries. DCP operates a fully integrated “quarry-to-customer” business in 7 of its operations with activities covering manufacturing, sales and distribution of cement. DCP plans to utilize proceeds of the bond issuance to refinance existing short-term debt previously applied towards cement expansion projects, working capital and general corporate purposes.
Please see below the terms of the offer:
|Issuer||Dangote Cement PLC|
|Issue Size||Up to â‚¦100.0 billion|
|Description||Series 1 Fixed Rate Senior Unsecured Bonds|
|Effective Yield (%)||12.2500 -12.5000|
|Par Value /Issue Price||N1000 per Unit|
|Issuer Rating (Short term)||AA+ (GCR); Aa2 (Moody)|
|Issuer Rating (Long term)||AA+ (GCR); Aa3 (Moody)|
|Subscription||Minimum of â‚¦10.0 million and multiples of â‚¦1,000 thereafter|
|Coupon Basis||Fixed Rate, Semi-annual|
|Tax Considerations||Free and clear of withholding taxes|
|Offer Open Date||Friday, 3 April 2020|
|Offer Close/Allotment Date||Tuesday, 14 April 2020|
|Settlement Date||Friday, 17 April 2020|
Offer valid till 9:00am on (14-Apr-20)
*Please note that the minimum subscription for the Bond is N10,000,000.00
FGN Bonds Update: Average Yield Declines 25bps W-o-W as Bearish Momentum Halts
Last week, the bonds market halted its bearish momentum as average yield declined 25bps W-o-W to settle at 11.8%. Following the release of the second quarter bond issuance calendar by the Debt Management Office (“DMO”), demand from local investors improved across the yield curve amidst tepid activities from foreign investors. Most buying interests witnessed were concentrated on mid tenor bonds, particularly the 18-Jul-34 (-72bps), 27-Mar-35 (-56bps) and 18-Mar-36 (-34bps) maturities.
According to the DMO, a total of N75.0bn to N165.0bn is expected to be offered across the 5-year (12.75% APR-2023), 15-year, (12.50% MAR-2035) and 30-year (12.98% MAR 2050) reopening instruments during this quarter. This is significantly lower when compared to the N560.0bn it raised in the first quarter of 2020. Nevertheless, the DMO also noted that the amount to be offered could change upon approval to raise the N850.0bn, approved as New external borrowing, from the domestic market.
In addition, the DMO suspended the April savings bond offer scheduled to open on April 6th due to the lingering COVID-19.
This week, we expect more activities in the bond market as improved system liquidity continues to fuel local demand seeking to cherry pick bonds with attractive yields in the secondary market. Investors are thus advised to trade cautiously while bargain hunting for bonds with attractive yields.
Please see indicative secondary market bond rates below:
|Bond||Tenor (Years)||Yield (%)||Coupon (%)||Implied Price (N)|
Rates are valid till 01:45pm today (6-Apr-2020)
*Please note that the minimum subscription for Bonds is N20, 000,000.00