Posted on September 27, 2017
PwC Nigeria says in the medium and long term, the Nigerian equities market is expected to pick up as the country continues to see better economic indicators, following a recent announcement of the economy marginally exiting recession.
In the short term, the consultancy firm said it expects inflation and hence yields, to start to drop as the Federal Government reaches its debt ceiling, which in turn may lead to an increase in domestic corporate bond issuances.
PwC Nigeria revealed this in its Nigerian Capital Market Update released for September 2017.
It said, “Consistent with global sentiments, we also believe cross-border investors will turn bearish on emerging market bonds, in line with rating agencies’ sentiments. In the medium and long term, we expect to see activity pick up in the equity capital markets as Nigeria continues to emerge from the recession and companies execute plans shelved in 2015 due to uncertainty.”
According to the report, there have been no initial public offerings on the Nigerian Stock Exchange, or by Nigerian companies on foreign exchanges, to date, in 2017.
However, the company saw some further offers (for instance in Guinness Nigeria Plc) and activity in the secondary market as Foreign Portfolio Investors increased significantly, which it termed a positive indicator for the recovery of the Nigerian equity capital markets.
It said the domestic corporate bond market had therefore tapered in 2017 relative to activity observed between 2014 and 2016, adding, “We do, however, see increased activity in the near term from large Nigerian corporates looking to refinance for longer tenors, and other issuers looking to finance large projects with the support of guarantees from new players in the market such as InfraCredit, established by the Nigeria Sovereign Investment Authority in collaboration with Guarant Co.
“The decline in government revenues has severely impacted budgetary obligations across the three tiers of government. The implication for the Federal Government was a 14 per cent decline in 2016 revenues compared to 2015, resulting in a fiscal deficit of 2.2 per cent of the Gross Domestic Product (2015: 1.6 per cent of GDP), the highest deficit
“To finance this deficit, the Federal Government borrowed N2.2tn from the domestic bond market in 2016, the highest domestic borrowing in recent times. This caused corporate bond yields to increase to levels nearly equivalent to standard bank financing, which has discouraged issuers from seeking funding through the domestic capital markets.”
Corporate Eurobond issuances at Q2 2017 of $1bn (N305.2bn), it noted, were almost at par with 2016 issuances of $1.1bn (N277.9bn), adding that between 2016 and 2017, two new Nigerian issuers accessed the Eurobond market for the first time- IHS in 2016 and UBA in 2017- signaling continued global investor appetite for Nigerian assets despite the economic recession.
“We expect more Nigerian issuers to access the Eurobond market as the Nigerian economy stabilises following the emergence from the recession and as naira volatility subsides,” it maintained.