Nigerian Bank Just Sold Most Expensive Emerging-Market Bond

  • Fidelity sells $400 million of bonds with 10.75% yield
  • Exotix Capital assigns buy recommendation due to high spread

Nigeria’s Fidelity Bank Plc sold the highest-yielding Eurobond from emerging markets this year, joining a rush for issuance before higher U.S. interest rates push up borrowing costs.

The mid-sized Lagos-based lender issued $400 million of five-year securities with a 10.75 percent yield on Wednesday, according to a person familiar with the matter who asked not to be identified. The deal initially had guidance of about 11 percent, said the person.

Fidelity is the third Nigerian bank to sell Eurobonds this year after bigger rivals Zenith Bank Plc and United Bank Plc, while also following the lead of the country’s government, which plans to more than double its outstanding dollar debt to $9 billion. Investors have piled into emerging markets to hunt for higher rates, as those in developed nations linger near all-time lows.

The Eurobond is the first from Fidelity, which is rated B- by S&P Global Ratings and Fitch Ratings, or six steps into junk territory, since 2013. The yield fell to 10.27 percent by 11:08 a.m. in Lagos. The yield on UBA’s $500 million five-year notes fell 13 basis points to 7 percent on Wednesday, extending their drop since they were issued in June at 7.88 percent. Zenith’s notes, also due in 2022, traded at 6.06 percent.

Small- and mid-sized banks in Nigeria, Africa’s biggest oil producer, have struggled to raise capital as the economy recovers slowly from its worst slump in around 30 years, triggered by the 2014 collapse in crude prices. Most of the dollar bonds issued this year with higher yields than those of Fidelity, which has $4.2 billion of assets, came from the North American corporate market, according to data compiled by Bloomberg.

‘Generous’ Rate

Citigroup Inc., Renaissance Capital and Standard Bank Group Ltd. managed Fidelity’s deal, which included the repurchase of $256 million of its $300 million of existing dollar notes due in May next year.

“If you account for the stage Fidelity is at in its evolution, the macroeconomic situation and the current apathy toward the Tier 2 banking space among investors, the pricing appears reasonable,” Temitope Popoola, the head of RenCap’s Nigerian unit, said by phone from Lagos Thursday. 

“The other point is that we will likely see some tightening in the U.S. over the next few months and this should very likely lead to more expensive access to funding,” Popoola said. “Time will tell but this rate may be considered generous over time.”

Exotix Capital, in a note to clients, assigned a buy recommendation because of the new debt’s high spread over other Nigerian bank bonds.

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