Foreign investors rattled by controversial Nigeria chief judge suspension

Imagine what would happen if United States President Donald Trump suspended John Roberts, the country’s highest ranking judicial officer, without due process and barely two weeks before general elections. That has just happened in Nigeria.

For three days, BusinessDay closely watched the direction of Nigerian Eurobond yields as well as monitored the exchange rate at the market-reflective Investors and Exporters window to capture the sentiments of foreign investors concerning the controversial suspension of Nigeria’s chief judge, Walter Onnoghen, by President Muhammadu Buhari, Friday.

Those sentiments delayed initially but are finally here. And they are negative.

A Eurobond sell-off has been ignited and the naira forced to surrender rare gains picked up in the three days before Onnoghen’s suspension.

The country’s Eurobonds had their worst day this year on Tuesday, according to data compiled by BusinessDay, after seven of the country’s eight outstanding Eurobonds tumbled and average yields soared by 15 basis points from Friday (Jan 25)’s close, being the day of the suspension.

Yields are rising for only the first time this year and have now snapped successive weeks of decline that saw average yields shed nearly 30 basis points since Jan 2.

The sell-off is a signal that holders of Nigeria’s dollar-denominated bonds, most of whom are foreign investors, are reacting negatively to the news.

The controversial suspension, which has drawn widespread concerns from a long list of observers from the US to EU,
sends a signal that the rule of law and constitutional provisions can be swept under the carpet at will.

That has understandably spooked investors who balk at the thought of putting their money where there is so much uncertainty and they never really know what to expect.

Senate President, Bukola Saraki, shared similar sentiments when he said the abuse of due process in the proposed trial of the Chief Justice, ”would send a wrong signal to local and foreign investors about Nigeria’s system of litigation.”

If the head of Nigeria’s third arm of government is unable to get justice, what more a foreign investor with little or no ties to Nigeria outside his or her business.

The yields on the benchmark $1.5 billion Eurobond maturing November 2027 jumped the most, after rising 23 basis points to 8.52 percent from 8.29 percent last Friday, bringing an end to a steady decline from 9.25 percent as at January 2.

Typically, such foreign sell-offs are triggered by a decline in global crude oil prices, only that this time oil prices have climbed steadily since making a weak start to the year.

As at Wednesday morning, Brent crude oil prices had gained 11.7 percent to $61.32 per barrel from $54.91 per barrel January 2.

“The sell-off is not being driven by global oil prices this time, rather it shows that foreign investors have not taken the suspension of such an important figure in the person of the Chief Judge, with a pinch of salt,” a South Africa-based fund manager told BusinessDay.

“Nigeria will easily be in the bad books of some fund managers who have been unexpectedly rattled time and again,” the person said. “Just when investors were beginning to think next month’s elections and the possibility of higher interest rates in the US had being overpriced into naira assets, this happens and Nigeria is suddenly off the table again.”

The naira has also been hit by the controversy surrounding Onnoghen’s suspension which legal experts and opposition parties say was unconstitutional.

It looked like last year’s top performing emerging market currency was firming up to the dollar after hovering between N363 to N364 per US dollar in the opening weeks of 2019. It had closed at N362 per US dollar, Friday, its strongest yet this year, only for it to weaken to N363 Tuesday, according to FMDQ data.

In the equities market, a long-standing downturn shields the impact of Onnoghen’s suspension.

LOLADE AKINMURELE