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Nigerian bonds index inclusion spurs structured note sales

Investors bought $284 million of structured notes tied to Nigerian government debt in the past six weeks in anticipation of the debt’s inclusion in benchmark bond indexes and after central bank stimulus measures.

Standard Chartered Plc (STAN) and Citigroup Inc. (C) led banks in selling 28 naira-denominated credit-linked notes this year worth 64.08 billion naira ($407 million), with 70 percent of issuance coming since Aug. 23, according to data compiled by Bloomberg. Only two such notes totaling $23.5 million were sold in all of 2011.

Investor demand for the currency and debt of Africa’s biggest crude producer has surged since JPMorgan Chase & Co. (JPM) said in August it would include Nigerian debt in its bond indexes, said Yvonne Mhango, an economist for sub-Saharan Africa at Renaissance Capital.

Riskier assets became more appealing after the world’s largest central banks took action to spur growth in September, including a third round of quantitative easing in the U.S., known as QE3.

“The increase in interest in Nigeria’s local currency debt is due to QE3, which has boosted investors’ risk appetite, partly because  are likely to remain low for longer and also because of the inclusion of Nigerian bonds in the JPMorgan government bond index,” said Johannesburg-based Mhango. “That signals Nigerian debt is liquid.”

The naira appreciated three per cent against the dollar this year, making it the best performer in Africa, according to data compiled by Bloomberg.

The decision by JPMorgan to include Nigerian government bonds in its GBI-EM indexes indexes was important in strengthening sentiment toward the naira, Ecobank Transnational Inc. (ETI) analysts led by Paul-Harry Aithnard in Paris wrote in a Sept. 25 report.

JPMorgan will include Nigeria’s most-traded bonds in its GBI-EM indexes between Oct. 1 and Dec. 3, Giulia Pellegrini, the bank’s London-based sub-Saharan Africa economist, wrote in a Sept. 25 note.

Nigeria sought inclusion into emerging-market indexes to increase portfolio flows into its capital markets. Securities and Exchange Commission Director General Arunma Oteh said in an interview in October that she was planning to discuss its inclusion with index providers, such as JPMorgan and Morgan Stanley.

Inclusion in JPMorgan’s GBI-EM indexes could lure $1.5 billion to the country, the bank predicted.


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