Economy
Corporate Bond Market to Rebound as FGN Securities Yields Drop
The economic and financial market developments in the last few months in Nigeria point to a possible rebound of activities in the Corporate Bond Market (CBM) very soon.
The CBM had experienced a lull in activities in the last few years because of unfavourable economic and market conditions.
The recent events in Nigeria are changing the unfavourable conditions that have limited the growth of the CBM.
The recent drop in the yields on the Federal Government of Nigeria (FGN) securities, particularly the Nigerian Treasury Bills (NTB), creates an opportunity for the growth of activities in the CBM.
The improvement in the macroeconomic environment in Nigeria and the strategy of the Debt Management Office (DMO) to restructure the debt portfolio of the FGN were primary drivers of the drop in yield.
The need to curb the high inflation rate and maintain foreign exchange stability was responsible for the high NTB yields.
Consequently, there was a lull in activities in the CBM as companies could not compete with the high yields on the 364-day NTB.
Accordingly, most companies opted for Commercial Papers (CP) to raise short-term funds as bridge finance. The average yield on the 364-day NTB between January 2017 and November 2017 stood at 22.16% with the highest yield of 23.41% recorded in 19 April 2017. The high yields crowded out the corporate borrowers from the debt market.
According to data from FMDQ OTC Securities Exchange as at November 1, 2017, only two corporate bonds have so far been issued in 2017.
The two Corporate Bonds are: 17 percent Mixta Real Estate Plc January 2022 Bond and 18.25 percent Dufil September 2022 Bond.
In another development, a review of the latest Purchasing Managers’ Index (PMI) report that the Central Bank of Nigeria (CBN) published for the month of October 2017 shows that economic activities in the manufacturing and non-manufacturing sectors expanded further.
A PMI below the 50 points’ level suggests a decline in business activity while a PMI higher than the 50 points level suggests an expansion. When the PMI is at the 50 points’ level, it means that the degree of business activity in the economy is unchanged.
The Composite Manufacturing Index (CMI) expanded for the seventh consecutive month to stand at 55.0 points.
The Composite Non-Manufacturing Index (CNMI) also expanded for the sixth consecutive month to 55.3 points in October 2017 from 54.9 points in September 2017.
The increase in the PMI is also an indication of expected business expansion in the short-to-medium term which will require more financing.
The consensus forecasts for the Nigerian economy are that the Gross Domestic Product (GDP) will continue to grow. Although the GDP growth rates of the International Monetary Fund (IMF) for Nigeria from 2017 to 2020 are conservative, they are in the positive region.
Both FSDH Research and the Budget Office of the Federation believe the growth rates in the economy between 2017 and 2020 will remain strong, ranging from 2 percent to 7 percent. This means that more business investments will be undertaken.
Our analysis of the data released by the Nigerian Bureau of Statistics (NBS) on the Nigerian GDP (Expenditure and Income Approach) as at Q4, 2016 shows that consumption expenditure of households in Nigeria rose in 2016 compared with 2015.
The total consumption expenditure of households rose by 11.87 percent from N74.41trn in 2015 to N83.25trn in 2016.
FSDH Research expects the households’ consumption expenditure to continue to rise as the outlook for the Nigerian economy remains positive and consumer sentiments improve. The growth in the households’ consumption will also drive investments from firms to meet the growing demand.
FSDH Research believes that the capital requirement for these investments will exceed what companies can generate from internal cash flow. These companies will need external funding and with the expected drop in yields, corporate bond will be an attractive source of raising non-permanent long-term capital to meet the investment needs of firms.
By Adedapo Adesanya
Three stocks further weakened the NASD Over-the-Counter (OTC) Securities Exchange by 1.12 per cent on Wednesday, April 8, with the Unlisted Security Index (NSI) down by 44.43 points to 3,930.91 points from the previous day’s 3,975.34 points, and the market capitalisation went down by N26.59 to N2.351 trillion from N2.378 trillion.
MRS Oil lost N11.00 during the session to close at N161.00 per share compared with Tuesday’s closing price of N172.00 per share, Central Securities Clearing System (CSCS) Plc dipped by N3.74 to N67.95 per unit from N71.69 per unit, and Afriland Properties Plc fell by N1.10 to sell at N15.95 per share versus N17.05 per share.
There were two gainers at the midweek trading session, led by IPWA Plc, which appreciated by 55 Kobo to N6.61 per unit from N6.06 per unit, and First Trust Mortgage Bank Plc improved its value by 4 Kobo to N2.32 per share from N2.28 per share.
Yesterday, the volume of securities rose by 620.4 per cent to 5.7 million units from 797,264 units, the value of securities increased by 25.1 per cent to N32.7 million from N26.1 million, and the number of deals climbed by 12.1 per cent to 37 deals from the preceding session’s 33 deals.
Great Nigeria Insurance (GNI) Plc ended the day as the most traded stock by value on a year-to-date basis with 3.4 billion units sold for N8.4 billion, trailed by CSCS Plc with 57.2 million units exchanged for N3.9 billion, and Okitipupa Plc with 27.5 million units traded for N1.8 billion.
GNI Plc also finished the session as the most traded stock by volume on a year-to-date basis with 3.4 billion units valued at N8.4 billion, followed by Resourcery Plc with 1.1 billion units worth N415.7 million, and Infrastructure Guarantee Credit Plc with 400 million units transacted for N1.2 billion.
By Adedapo Adesanya
Foreign Exchange (FX) demand pressure eased on the Naira on Wednesday, April 8, in the Nigerian Autonomous Foreign Exchange Market (NAFEX) after gaining N14.84 or 1.07 per cent against the greenback to quote at N1,371.82/$1 compared with the previous day’s N1,386.66/$1.
Also, the local currency appreciated against the Euro in the same market window at midweek by N1.54 to close at N1,604.07/€1 versus Tuesday’s closing rate of N1,605.61/€1, but lost N6.26 against the Pound Sterling to trade at N1,844.83/£1 versus N1,838.57/£1.
In the parallel market, the exchange rate of the Naira to the US Dollar remained unchanged yesterday at N1,410/$1, according to data sourced by Business Post.
There were indicators that the official FX market experienced a liquidity surge, which eased worries around the dominant US Dollar on Wednesday, as the Central Bank of Nigeria (CBN) revealed interbank deals rose to 220 from 71 reported the previous day.
The domestic currency has been in strong demand from foreign portfolio investors seeking to purchase OMO bills and other fixed-income instruments.
Forecasts also show that the local currency will remain relatively stable during the second quarter of the year, trading within the N1,340 to N1,430 per Dollar band on improved FX liquidity, stronger oil earnings, and rising external reserves, which have climbed above 50 billion dollars.
As for the cryptocurrency market, it fell after an initial ceasefire-fueled rally, with markets retracing Wednesday’s “ceasefire euphoria” as cracks emerge in the US-Iran truce while the Strait of Hormuz remains effectively closed.
Global risk assets face renewed pressure as geopolitical uncertainty combines with what analysts call “uncoordinated tightening” by major central banks, reinforcing higher-for-longer interest-rate expectations.
The price of Cardano (ADA) fell by 4.7 per cent to $0.2500, Ripple (XRP) slumped 3.7 per cent to $1.33, Dogecoin (DOGE) shrank by 3.5 per cent to $0.0915, Binance Coin (BNB) slipped 2.6 per cent to $600.02, Ethereum (ETH) went down by 2.5 per cent to $2,183.82, Solana (SOL) dipped 2.5 per cent to $82.24, and Bitcoin (BTC) depreciated by 1.1 per cent to $70,995.20.
However, TRON (TRX) appreciated by 0.4 per cent to $0.3173, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited rallied by 0.28 per cent on Wednesday despite weak investor sentiment, as the bourse ended with 18 price gainers and 38 price losers, implying a negative market breadth index.
The growth recorded yesterday by Customs Street was influenced by the 2.11 per cent rise posted by the energy index, and the 1.79 per cent jump achieved by the banking sector.
The other sectors experienced profit-taking, with the consumer goods losing 1.07 per cent, the insurance counter down by 0.36 per cent, and the industrial goods space down by 0.19 per cent.
Universal Insurance chalked up 10.00 per cent to sell for N1.21, Omatek improved by 9.78 per cent to N2.47, VFD Group expanded by 9.71 per cent to N11.30, CWG appreciated by 9.64 per cent to N21.05, and Livestock Feeds gained 9.56 per cent to close at N7.45.
On the flip side, UPDC REIT lost 10.00 per cent to settle at N6.75, Fortis Global Insurance shed 9.92 per cent to quote at N1.18, Deap Capital depreciated by 9.85 per cent to N5.40, Chams went down by 9.47 per cent to N3.06, and Japaul declined by 8.82 per cent to N3.10.
Yesterday, the All-Share Index (ASI) went up by 562.43 points to 202,585.53 points from 202,023.10 points, and the market capitalisation advanced by N389 billion to N130.404 trillion from N130.015 trillion.
During the session, 1.0 billion stocks worth N40.6 billion exchanged hands in 52,723 deals compared with the 1.1 billion stocks valued at N40.3 billion executed in 78,006 deals a day earlier, indicating an uptick in the trading value by 0.74 per cent, and a shortfall in the trading volume and number of deals by 9.09 per cent and 32.41 per cent apiece.
The activity chart was led by Access Holdings, which sold 233.0 million units valued at N6.1 billion, Fidelity Bank exchanged 113.1 million units worth N2.2 billion, Wema Bank recorded a turnover of 103.3 million units valued at N2.7 billion, Zenith Bank transacted 60.6 million units for N6.5 billion, and Chams traded 47.5 million units worth N154.6 million.
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