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 Modupe Gbadeyanka
The federal government has been asked by the Nigerian Bar Association (NBA) to suspend the implementation of the controversial tax laws.
In a reaction to the tax reform acts, the president of the group, Mr Afam Osigwe (SAN), the suspension of the laws would allow for a proper investigation into allegations of alterations in the gazetted and harmonised copies.
A member of the House of Representatives, Mr Abdussamad Dasuki, alleged that some parts of the laws passed by the parliament were different from the gazetted copy.
To address the issues raised, the NBA said it is “imperative that a comprehensive, open, and transparent investigation be conducted to clarify the circumstances surrounding the enactment of the laws and to restore public confidence in the legislative process.”
“Until these issues are fully examined and resolved, all plans for the implementation of the Tax Reform Acts should be immediately suspended,” the association declared.
It noted that the controversies “raise grave concerns about the integrity, transparency, and credibility of Nigeria’s legislative process.”
“These developments strike at the very heart of constitutional governance and call into question the procedural sanctity that must attend lawmaking in a democratic society,” it noted.
“Legal and policy uncertainty of this magnitude has far-reaching consequences. It unsettles the business environment, erodes investor confidence, and creates unpredictability for individuals, businesses, and institutions required to comply with the law. Such uncertainty is inimical to economic stability and should have no place in a system governed by the rule of law.
“Nigeria’s constitutional democracy demands that laws, especially those with profound economic and social implications, emerge from processes that are transparent, accountable, and beyond reproach. Anything short of this undermines public trust and weakens the foundation upon which lawful governance rests.
“We therefore call on all relevant authorities to act swiftly and responsibly in addressing this controversy, in the overriding interest of constitutional order, economic stability, and the preservation of the rule of law,” the organisation stated.
By Adedapo Adesanya
Demand for hot stocks, including MRS Oil Plc, buoyed the NASD Over-the-Counter (OTC) Securities Exchange by 0.52 per cent on Tuesday, December 23.
The energy company was one of the three price gainers for the session as it chalked up N19.69 to sell at N216.59 per share versus the previous day’s value of N196.90 per share.
Further, FrieslandCampina Wamco Nigeria Plc gained N2.95 to close at N56.75 per unit versus N53.80 per unit and Golden Capital Plc appreciated by 84 Kobo to N9.29 per share from Monday’s N8.45 per share.
Consequently, the market capitalisation went up by N10.95 billion to N2.125 trillion from N2.125 trillion and the NASD Unlisted Security Index (NSI) rose by 18.31 points to 3,570.37 points from 3,552.06 points.
Yesterday, the NASD bourse recorded a price loser, the Central Securities Clearing System Plc (CSCS), which gave up 17 Kobo to close at N33.70 per unit against the previous trading value of N33.87 per unit.
The volume of securities traded at the session went down by 97.6 per cent to 297,902 units from the previous day’s 12.6 million units, the value of securities decreased by 98.5 per cent to N10.5 million from N713.6 million, and the number of deals remained flat at 32 deals.
By value, Infrastructure Credit Guarantee Company (InfraCredit) Plc ended as the most actively traded stock on a year-to-date basis with 5.8 billion units exchanged for N16.4 billion. This was followed by Okitipupa Plc, which traded 178.9 million units valued at N9.5 billion, and MRS Oil Plc with 36.1 million units worth N4.9 billion.
In terms of volume, also on a year-to-date basis, InfraCredit Plc led the chart with a turnover of 5.8 billion units traded for N16.4 billion. Industrial and General Insurance (IGI) Plc ranked second with 1.2 billion units sold for N420.7 million, while Impresit Bakolori Plc followed with the sale of 536.9 million units valued at N524.9 million.
By Dipo Olowookere
It was another bullish trading session for the Nigerian Exchange (NGX) Limited as it closed higher by 0.59 per cent on Tuesday.
The market further rallied due to continued interest in large and mid-cap stocks on the exchange by investors rebalancing their portfolios for the year-end.
Yesterday, Aluminium Extrusion sustained its upward trajectory after it further appreciated by 9.96 per cent to N14.90, as Austin Laz gained 9.81 per cent to close at N2.91, Custodian Investment improved by 9.69 per cent to N38.50, and First Holdco soared by 9.35 per cent to N50.30.
Conversely, Royal Exchange declined by 7.22 per cent to N1.80, Champion Breweries shrank by 6.57 per cent to N15.65, NASCON lost 5.36 per cent to trade at N105.05, Sovereign Trust Insurance depreciated by 5.28 per cent to N3.77, and Japaul went down by 4.51 per cent to N2.33.
At the close of business, 29 shares ended on the gainers’ table and 27 shares finished on the losers’ log, representing a positive market breadth index and bullish investor sentiment.
This raised the All-Share Index (ASI) by 895.06 points to 153,354.13 points from 152,459.07 points and lifted the market capitalisation by N579 billion to N97.772 trillion from the previous day’s N97.193 trillion.
VFD Group finished the day as the busiest stock after it recorded a turnover of 192.0 million units worth N2.1 billion, GTCO exchanged 63.5 million units valued at N5.6 billion, Access Holdings traded 49.8 million units for N1.0 billion, First Holdco sold 45.8 million units valued at N2.3 billion, and Secure Electronic Technology transacted 38.3 million units worth N28.4 million.
In all, market participants bought and sold 677.4 million units valued at N20.8 billion in 27,589 deals compared with the 451.5 million units worth N13.0 billion traded in 33,327 deals on Monday, showing an improvement in the trading volume and value by 50.03 per cent and 60.00 per cent apiece, and a shortfall in the number of deals by 17.22 per cent.
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