The narrative in the Nigerian corporates Eurobond space has taken a new turn in 2019. This is as corporates, specifically banks, redeemed $1.1bn worth of outstanding Eurobond notes before maturity so far in 2019. Aside from ZENITH BANK ($500.0mn) and DIAMOND ($200.0mn) 2019 notes, which were held to maturity and redeemed as at when due in April and May 2019 respectively, we observe that ACCESS ($400.0mn), FBN ($450.0mn), and ECOBANK ($250.0mn) have all successfully recalled their outstanding notes in June, July, and August respectively.
Notably, ZENITH BANK recently announced plans to recall its outstanding 2022-dollar notes, worth $500.0mn, by 16th of September 2019, to bring the total value of early redemptions in 2019 to a whopping $1.6bn. Hence the question is, why are the banks exercising the call option on their dollar notes, early? Two things come to mind, are
the banks looking to reprice these dollar liabilities in view of a lower global interest rate environment or the fear of a near to medium term naira devaluation?
Our desk evaluation showed that more than the allure of calling outstanding issues and reissuing at lower interest rates, early redemptions could be more titled to the fears of an imminent currency adjustment that could increase obligations of these banks in domestic currency. Again, with maturities of most of these Eurobonds scheduled for 2021-2022, the banks are likely pricing the next devaluation to happen any time from 2020.
United Capital Plc Research