24 Aug SSA Eurobond: Value Still Beckons
SSA Eurobond: Value Still Beckons
Q & A
1. What factors can one look out for that could adversely impact risk sentiment on SSA Eurobonds?
Crash in commodity prices and serious devaluation in currency.
2. Why is the Nigerian Eurobond Outperforming despite the negative news in global economy?
At the genesis of the Coronavirus pandemic, we saw yields go up as people became weary of Nigeria’s position due to its overdependence on oil. However, with stimulus packages across the world and OPEC+ cuts and recovery in oil prices, we have seen a bit more stability in that space. When oil prices crashed, yields went up. When oil prices recovered, yields came back down. Ideally, a good entry point would have been at the peak of the virus and oil price crash.
3. How liquid are SSA Eurobonds compared to their developed market peers?
Compared to the developed markets, they are relatively liquid. However, within the African space liquidity depends on how much Eurobonds are outstanding.
4. Can you talk about liquidity? What's an easy size to trade buy / sell in a day without moving the market. also, typical bid / ask spread?
Again, the SSA market is fairly liquid. we have traded tens of millions of dollars on different papers in a day.
5. How resilient are the Non-oil SSA Eurobonds to General economic shocks?
Each sovereigns Eurobond is linked to the sovereign’s major commodity export. Therefore, countries that are highly dependent on agricultural products for example will be more susceptible to price shocks within that space. Also, the country’s fiscal position is something to keep an eye on.
6. Can you speak to your fees? how do you make money - spread, tx fee etc. Do you guarantee best (price) execution for example?
We make use of a broad array of counterparties, locally and internationally. For direct Eurobond investments, we charge 0.15%pa on the face value of the investment.
7. Do you provide access to non-sovereign issuers?
There are a number of corporate issuers and we can certainly provide that access. Yes, we can but it is subject to availability as some of the non-sovereign issuers are illiquid.
8. What will be the impact of rising second wave of Covid-19 Pandemic on the SSA Eurobond Markets?
We do not foresee a significant impact of a second wave on the markets. I think the worst is already gone and so much money has been pumped into the system already. What we might see is a gradual scaling back in lockdown due to a potential second wave but again, this should not have a significant impact on oil prices as the worst is over. We think we will continue to maintain oil prices in the 40’s levels so we should not see a significant adverse impact in the markets this time around.
9. The 6.5% return for 6months, is that equivalent to 13% Gross of charges?
No, its 6%pa. Essentially prorated for 1 year.
10. My question is to inquire if someone between $10,000- $20,000 has an investment space in the Eurobond market. What other investment instruments can you help with?
You can play in our CP Dollar note space, we are happy to speak to you further about the returns on this investment. The minimum investment for Eurobonds is $200,000.00.
11. What is the tax obligation on the Eurobond yield?
12. For people in diaspora, what measure have you put in place to help such investors to mitigate the FX risk upon maturity of their investment in these bonds and the repatriation back to their currency if they do not want to roll over. Also do you have a correspondence bank here in UK?
Investing in Eurobonds helps against naira devaluations. However, for currencies denominated in other than naira, the FX risk is between the currency pair in question (Eg, GBP and USD). In regards to a correspondence bank in the UK, we do not currently have one but we are working on it.
13. What's your assessment of liquidity risk with respect to investing in 1. Nigerian sovereign and corporate Eurobonds? and 2. African sovereign Eurobonds?
Sovereign Eurobonds in general are more liquid than corporates. The liquidity risk among sovereign Eurobonds will depend on the outstanding Eurobonds of each sovereign.
14. Are there other countries within Africa that are in view?
Kenya, Ghana, Angola.
15. What is the future of DFI in view of the COVID situation and the infrastructural challenges? Secondly, what is the short to medium term viability of Nigeria bonds?
In this period, because of the global space, foreign direct investment will be pressured until there is some sort of vaccine in view. However, going forward into 2021, FDIs are likely to pick up as the global economy starts to stabilize.
For the Nigerian Eurobonds, we still find them to be attractive going forward particularly due to the hedging properties it provides. For local bonds, due to policies by the central bank we still believe that yields will remain significantly pressed.
16. How do you charge your clients (fees)?
Management fee inclusive of custody fee of 0.15% p.a. on the face value will be paid bi-annually.
17. Do you have a correspondence bank in the US?
No, we do not currently have a correspondence bank in the US.
18. What is the settlement of the proceeds like? Do I need to have a Dom account before investing in this market space?
Yes, you will need a domiciliary account to send and receive the proceeds from your investment.
19. What do you think of the high dollars now before investing in the Eurobond rate?
According to market data, 1-year OTC futures are currently trading at 424.73. Current spot rate is 388 meaning that the currency can still call by 8.6%.
20. For the direct investment do you quote pricing on a clean or dirty basis?
We always quote the clean price.
21. Does Comercio do a quarterly macro update webinar?
We do not do that for now. Certainly, something to consider.
22. Do both the direct and indirect investment routes offer the ability to choose reinvestment or collection of coupons?
Yes, it does.
23. Please to what extent do you think investment in Eurobond puts pressure on the local currency?
I don’t think it puts any significant pressure on the local currency seeing as we have a huge foreign currency deposit in the banking system
The information provided is general in nature and does not constitute financial advice. Comercio Partners Group does not assume any liability or responsibility in relation to the information provided, including information provided by third parties. While every effort has been made to ensure the information provided is accurate, do not rely solely on this information to make a financial or investment decision. Before making any financial or investment decision, consult your financial adviser.
The Comercio Partners Group does not give any warranty as to the accuracy, reliability or completeness of the information contained herein. The Comercio Partners Group, its employees and affiliates do not accept any liability for any error or omission, or for any loss or damage suffered by a recipient or any other person.