* Overseas buyers stay away from latest T-bill auction
* Auction dominated by local investors
* Foreign investors fret over currency, coming elections
By Tosin Sulaiman
JOHANNESBURG, March 6 Foreigners stayed away
from Nigeria's latest Treasury bill auction, the first since the
suspension of the central bank's graft-fighting governor, in a
sign that investor confidence is yet to recover after the
Nigeria offered 180 billion naira ($1.10 billion) in
Treasury bills on Wednesday, with a similar amount maturing this
week. It sold 275.09 billion naira, with yields on the 182- and
364-day papers rising further above 13 percent, the central bank
said on Thursday.
Traders said foreign buyers remained on the sidelines and
demand was dominated by less risk-averse local investors drawn
by the attractive yields.
Foreign participation was "very marginal," said one analyst.
"It's probably that as those bills mature some international
investors won't roll over the position in the new auctions, so
they'll just take their FX and leave," he said, asking not to be
Further debt redemptions of at least 320 billion naira are
expected in Nigeria this month, providing a barometer of foreign
investor sentiment since Feb. 20 when President Goodluck
Jonathan suspended respected central bank chief Lamido Sanusi,
citing "acts of financial recklessness".
Many saw the suspension as an act of political revenge by
the president, who removed an outspoken critic of his
government's record on corruption in Africa's top oil producer.
Offshore investors had been pulling back from Nigeria before
Sanusi's suspension amid a broader retreat from emerging
markets. But the president's action further undermined faith in
policy stability in Africa's second-biggest economy at a time of
heightened uncertainty before elections in February next year.
Sanusi had been due to step down in June. Jonathan has
nominated Godwin Emefiele, the managing director of Zenith Bank
, Nigeria's third-biggest lender, as his successor.
With more debt due to mature in the weeks ahead and limited
liquidity in the secondary market, more outflows are likely this
month as investors await the return of their money, said Ayo
Salami, chief investment officer of asset manager Duet Group's
Africa Opportunities Fund.
"You don't have sufficient liquidity to be able to exit by
selling in the secondary market," he said. "The worst of the
outflows has not happened."
Another concern is that interest rates could rise if the
central bank feels that current policy efforts are failing to
stabilise the naira, which has weakened this year amid
emerging market volatility and after Sanusi's removal.
Rate rises would push down prices on the secondary market.
"Given this scenario any investor (foreign or local) looking
to exit via the secondary market would likely make a loss. So,
better to be out of the market completely rather than risk
making a loss if forced to exit swiftly," said Angus Downie,
head of economic research at Ecobank.
"NOT TEMPTED BACK"
Investors will need more reassurance about the naira's
stability and the pre-election policymaking environment before
being lured back.
"Our February client survey shows investors having moved
underweight FX in Nigeria for the first time in over two years,"
JP Morgan said in a research note.
Sanusi had warned that fiscal leakages, including what he
said was the state oil company Nigeria National Petroleum
Corporation (NNPC) failing to remit $20 billion it owed to
federal government coffers, were undermining the central bank's
ability to stabilise the naira.
Although the bank has defended the currency by selling
dollars, there are doubts about how long that can last as
foreign exchange reserves have fallen to a 19-month low of
Jeremy Brewin, head of emerging debt at ING Investment
Management, said he had reduced his exposure to Nigeria even
before Sanusi left.
"We moved out of Nigerian risk late last year and so far
have not been tempted back," he said. "You are giving up high
yield but the possibility of currency depreciation cannot be
Nevertheless, despite the upheaval at the central bank,
Nigeria's economic fundamentals remain strong compared to other
frontier markets given a relatively low debt-to-GDP ratio and
budget deficit, said Philippe de Pontet, Eurasia Group's Africa
director. The economy is forecast to grow around 7 percent this
"Nigeria still has a pretty positive story to tell," he
said. "If you look at other markets in sub-Saharan Africa, by
and large they're facing pretty significant twin deficits. They
also have currency pressures, thinner FX reserves."
Still, investors would be more comfortable sitting and
waiting if elections weren't imminent, said Michael Cirami, an
emerging markets fund manager at Eaton Vance Corp.
He noted that many who poured into Nigerian bonds after the
country was included in a key JP Morgan emerging market bond
index in October 2012 are unfamiliar with the country and may be
"The natural reaction is to cut and run," he said. "I don't
see why you wouldn't see more outflows given some of the changes
that have taken place."