JPMorgan will eject Nigeria from its Government Bond Index (GBI-EM) by the year-end unless it restores liquidity to currency markets in a way that allows foreign investors tracking the benchmark to transact with minimal hurdles.

The bank said late on Friday it had extended the deadline to eject Africa's biggest economy by another six months to take into account the arrival of President Muhammadu Buhari.

Nigeria held closely-fought presidential elections in March, in which opposition leader Buhari defeated incumbent president Goodluck Jonathan, in the country's first transition of power through the ballot box.

JPMorgan, which runs the most commonly used emerging debt indexes, placed Nigeria on a negative index watch in January and then said it would assess its place on the index over a three to five months period.

"Nigeria's status in the GBI-EM series will be finalized in the coming months but no later than year-end," JPMorgan said.

Removal from the index would force funds tracking it to sell Nigerian bonds from their portfolios, potentially resulting in significant capital outflows. This in turn would raise borrowing costs for Africa's largest economy, already suffering from a sharp drop revenue following a plunged in oil prices.

Nigeria's forex and bond markets have come under pressure after the price of oil, Nigeria's main export, plunged. In response, the central bank fixed the exchange rate in February after devaluing the naira last year and tightened trading rules to curb speculation. The naira has lost 8.5 percent this year.

"If we are unable to verify these factors, a review of Nigeria's status within the benchmark for removal will be triggered," it said in report, adding that the factors included a liquid currency market.

Analysts did not expect JPMorgan to remove Nigeria.

JPMorgan added Nigeria to the widely followed index in 2012, when liquidity was improving, making it only the second African country after South Africa to be included. It added Nigeria's 2014, 2019, 2022 and 2024 bonds.

The bank said Nigeria continues to remain eligible for the GBI-EM index, which has around $210 billion in assets under management benchmarked to it, with a weight of 1.8 percent.

The central bank last week made a tiny adjustment to its exchange rate peg to the dollar, which one analyst said may indicate that it is beginning to think about how to loosen its currency regime.

Source: http://www.reuters.com/article/2015/06/07/nigeria-bonds-index-idUSL5N0YT0GS20150607

http://www.bloomberg.com/news/articles/2015-06-08/nigeria-buys-time-to-boost-naira-liquidity-on-jpmorgan-reprieve

http://www.bloomberg.com/news/articles/2015-02-05/emefiele-expects-nigeria-to-stay-in-jpmorgan-s-em-bond-indexes

http://www.cnbcafrica.com/news/western-africa/2015/01/17/jp-morgan-nigeria-bond-index/

Can the house please shed more light on the impact of this i.e. (if the State is removed from the index) what is the effect on a retail investor who is invested on one of these Bonds (29-Jun-19 16%) and the State as a whole I know for sure high liquidity risk will come to play. Decline in foreign investors purchasing these instruments. please, help with more.

pipz:
Can the house please shed more light on the impact of this i.e. (if the State is removed from the index) what is the effect on a retail investor who is invested on one of these Bonds (29-Jun-19 16%) and the State as a whole I know for sure high liquidity risk will come to play. Decline in foreign investors purchasing these instruments. please, help with more.

The JPMorgan index is only an index used as a bench mark to value and evaluate the performance of the bonds vis-a-vis its peers. It adds credibility to the bonds which may help increase the price. However bond valuation is affected more by interest rate, and time to maturity and by credit rating. Having said that the removal will only dampen the enthusiasm of foreign investors in Nigerian bonds but if the new govt can get its act together and shore up the economy, investor confidence will return and may neutralize the effect of the removal

Nice 1 @Nairaquest tanx I think the CBN should just let the Naira find its cause. The Banks and business are being starved of FX.

Nigeria: JPMorgan decision postponed

IOL Monday 8th June, 2015JPMORGAN Chase extended a deadline to decide whether to remove Nigeria from its emerging market bond indexes tracked by more than $200 billion (R2.5 trillion) of funds, as a new government in the country settles in. The decision that might see Nigeria kicked out of the JPMorgan GBI-EM indexes because of central bank foreign-exchange trading restrictions would be ';finalised in the coming months';, JPMorgan said on Friday. – Bloomberg

pipz:
Nice 1 @Nairaquest tanx I think the CBN should just let the Naira find its cause. The Banks and business are being starved of FX.

if they let the NAIRA to float, it could go to N260 in 1 week, even N300 to the dollar. its a catch 22 situation. There is just no liquidity in the market, when foreign bond buyers want to sell, they cant get their money back due to restriction. Those restrictions are there to protect the currency.

pipz:
Nice 1 @Nairaquest tanx I think the CBN should just let the Naira find its cause. The Banks and business are being starved of FX.

I said in a bankers committee in 1995 and I am still saying it again. On September 26th 1986 the IMF tricked the then Nigerian Government into devaluing the Naira from 50 kobo per dolar to 4 naira per dolar. Since then the naira has been on a free fall
Nigerians depend so much on imports which increases the demand for the dollar and puts pressure on the naira. Even in this forum whoever asks for business advise is asked to import. As long as Nigeria continues to be import dependent without protecting the naira, it will exchange for 1000 to the Dollar in 2 to 5?years time.