Foreign investors prefer Nigerian banks’ Eurobonds to their stocks

Foreign investors can’t get enough of Nigerian banks’ Eurobonds but won’t touch their stocks with a ten-foot pole.

First, it was Access Bank and now United Bank for Africa (UBA) that has issued Eurobonds that ended up oversubscribed by foreign investors, a sign of strong investor confidence in Nigeria’s top banks. But their stocks don’t reflect the same level of confidence.

UBA on November 11 disclosed that its $300 million Eurobond was oversubscribed 1.7 times as investors staked $520 million for the five-year bond, which was issued at a coupon of 6.75 percent.

A coupon payment on a bond is the annual interest payment that the bondholder receives from the bond’s issue date until it matures.

For the UBA Eurobond, investors will receive 6.75 percent every year for five years. That is one of the cheapest coupons in emerging and frontier markets, yet another sign of investor confidence in the bank’s financial health.

The issue attracted interest from global investors across Europe, the US, the Middle East, Asia and Africa, with orders from “quality real money accounts,” the bank said in a statement announcing the successful transaction.

But it is not just UBA that has investors falling over one another to get a piece of its Eurobond.

The strong investor appetite for the Eurobonds of Nigerian banks already came to the fore when the country’s biggest bank, Access Bank, issued two $500 million Eurobonds in the space of three weeks.

The first issue was three times oversubscribed with an order book of $1.6 billion, the largest order book ever for a Nigerian bank Eurobond transaction.

The five-year Eurobond was sold with a coupon of 6.125 percent, just as cheap as UBA’s.

The second $500 million Eurobond was two times oversubscribed with total bids of $1 billion, having attracted wide investor interest as well.

Read also: Appetite for Access Bank Eurobond rises with second oversubcription in 2 weeks

The successful outings of Access and UBA are expected to spur other banks to sell Eurobonds ahead of the implementation of fresh regulatory guidelines (Basel III) that would require them to bolster their liquid assets to manage risks better.

But while investors are lapping up the Eurobonds of the banks, they are not as attracted to their stocks even though it delivers an even higher return “on paper.”

The NGX banking index, which tracks the performance of stocks of listed banks,’ is down 0.95 percent this year, according to data from the NGX.

UBA’s stock is down 5.78 percent since the start of the year. Guaranty Trust Bank, another one of Nigeria’s largest banks, has also seen its share price decline by 15.30 percent in the period under review while Zenith Bank is down 3.23 percent.

Access Bank’s share price has however gained 10 percent this year but that is not due to foreign investor activity rather it is a rally fuelled by local fund managers.

First Bank of Nigeria Holdings, which makes up the list of Nigeria’s five largest banks, is another exception, with its shares up 60 percent amid an ownership tussle that has led to an aggressive buying of the lender’s shares.

The lack of interest in banking stocks, once favourites of foreign investors, is due to challenges with accessing foreign exchange, which has made many wary of holding naira assets.

At the last check, foreign equity investors had some $2 billion trapped in Nigeria as the central bank rations sales of scarce dollars following a slump in inflows of the greenback.

Although dollar liquidity has been improving in recent times and is expected to improve even further as banks tap the Eurobond market, foreign investors remain largely on the side-lines.