Cit­i­group says Nige­rian deals van­ish­ing on de­val­u­a­tion risks

The Pak Banker - - MARKETS/SPORTS -

Cit­i­group Inc said deals in Nige­ria, Africa's big­gest oil pro­ducer, have plum­meted be­cause in­vestors are too scared to spend money when it's ex­pected that the naira will have to be de­val­ued.

"I see this as a year of pause," Miguel Melo Azevedo, Cit­i­group's head of in­vest­ment bank­ing for Africa, who helped sell dol­lar debt for coun­tries in­clud­ing Nige­ria and Morocco, said in an in­ter­view in Cape Town. "You will look very stupid if you buy some­thing in Nige­ria and to­mor­row it gets de­val­ued. There's an em­bar­rass­ment fac­tor."

Nige­ria's govern­ment is shield­ing the naira af­ter the 42 per­cent de­cline in the price of Brent crude in the past year has dec­i­mated state rev­enues. The cur­rency has been pegged at 197-199 per dol­lar since March last year, while in the un­of­fi­cial par­al­lel mar­ket, the naira is more than 50 per­cent weaker and traded at about 300 per dol­lar on Wed­nes­day.

The num­ber and the size of merg­ers and ac­qui­si­tions is show­ing the strain. So far this year there have been 12 deals val­ued at $1.45 bil­lion com­pared with a year ago when there were 19 deals worth $5.62 bil­lion, ac­cord­ing to data com­piled by Bloomberg. The value of merg­ers and ac­qui­si­tions in Nige­ria has plum­meted The value of merg­ers and ac­qui­si­tions in Nige­ria has plum­meted "The drop-off in merg­ers and ac­qui­si­tions could get worse," said Ronak Gad­hia, a re­search an­a­lyst at Lon­don-based Ex­otix Part­ners LLP. "The level of for­eign di­rect in­vest­ment has also dropped off a cliff and it's not go­ing to re­cover any time soon un­til poli­cies around the naira change."

Nige­rian Pres­i­dent Muham­madu Buhari came to power in May last year, promis­ing to fight cor­rup­tion, fix the econ­omy and tackle ter­ror­ism. What he couldn't give as­sur­ance on was the oil price. Eco­nomic growth last year eased to it's low­est pace in more than a decade and the bench­mark Nige­rian Stock Ex­change All Share In­dex has fallen 17 per­cent this year, the worst per­former in sub-Sa­ha­ran Africa. None­the­less, Buhari re­mains op­posed to de­valu­ing the cur­rency, ar­gu­ing that it would re­sult in higher in­fla­tion and hurt the poor­est cit­i­zens.

The drop in as­set val­ues "opens a buy­ing op­por­tu­nity," said Azevedo, who joined Cit­i­group in 2010 from Bank of Amer­ica Mer­rill Lynch and was in­volved in Bob Di­a­mond's ini­tial pub­lic of­fer­ing for At­las Mara Ltd. Nige­ria will likely be forced to de­value its cur­rency and "those that have a longer-term per­spec­tive can take ad­van­tage of this. 2017, if oil comes back even to $50, I can see some re­sump­tion of nor­mal lev­els of ac­tiv­ity," he said.

With far fewer dol­lars cir­cu­lat­ing in Nige­ria, the coun­try's banks are strug­gling to ac­cess enough for­eign ex­change to fa­cil­i­tate im­ports, set­tle ac­counts with correspondent banks, keep up with cus­tomers' use of credit cards in­ter­na­tion­ally and meet ma­tur­ing debt obli­ga­tions, ac­cord­ing to Ades­oji Solanke, Re­nais­sance Cap­i­tal's head of re­search in Nige­ria.

The big­gest lenders have about 3.4 bil­lion euros ($3.7 bil­lion) in bonds and are faced with coupon pay­ments of 1.5 bil­lion euros this year, Solanke said in a Dec. 21 re­port.

"It will be­come in­creas­ingly dif­fi­cult to source enough forex to ser­vice debt re­pay­ments and a de­fault will trig­ger a bank­ing cri­sis," said Robert Bes­sel­ing, a Jo­han­nes­burg­based ex­ec­u­tive di­rec­tor at busi­ness risk con­sul­tancy Exx Africa. "If a de­fault is go­ing to hap­pen, it will prob­a­bly hap­pen this year. It only takes one bank to hit the wall to cre­ate panic." Nige­ria re­mains Africa's most pop­u­lous coun­try and its big­gest econ­omy. Even though its growth has slowed, the econ­omy may ex­pand 3.2 per­cent this year and 4.9 per­cent in 2017 if in­fra­struc­ture in­vest­ment is pri­or­i­tized by the govern­ment, the In­ter­na­tional Mon­e­tary Fund said on Wed­nes­day. In­vestors may be re­con­sid­er­ing their pres­ence in Nige­ria, but those with a longer-term view won't with­draw com­pletely, Bes­sel­ing said.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.