Economy
Drop in Nigerian Treasury Bills Yield Imminent
By FSDH Research
Yields on the Nigerian Treasury Bills (NTBs), particularly on the 364-day tenor, are likely to drop with the plan of the Debt Management Office (DMO) to refinance the NTBs through foreign debt.
The DMO hinted recently that the Federal Government of Nigeria (FGN) plans to issue about US$3bn in foreign debt of longer tenor, to refinance the domestic debt particularly the high-cost NTBs.
The plan is in line with the debt management strategy of the FGN for 2016-2019, with the overall objective of reducing its total cost of borrowing to achieve the country’s strategic target of an optimal debt mix of 60 percent and 40 percent for domestic and external debts respectively.
The debt management strategy also sets a target of domestic debt mix of 75 percent and 25 percent for long and short-tenored debts respectively.
Our analysis of the data from the DMO on the debt structure of Nigeria as at March 2017 shows that the total public debt stood at N19.16 trillion, made up of N14.93 trillion (78 percent) and N4.23 trillion (22 percent) in domestic and foreign debts respectively.
Although the external debt component at 22 percent as at March 2017 is far from the optimal mix of 40 percent, it is an improvement from 14 percent as at 2013.
If the DMO were to move the debt position as at March 2017 to the planned optimal level, it means that it would have to refinance about N3.43 trillion of the local debt in favour of the external debt.
Thus, we expect the external borrowing to grow faster than the domestic borrowing in the medium to long term.
The FGN’s component of the domestic debt stood at N11.97 trillion as at March 2017. NTB, which is the short-term debt, accounted for 30 percent or N3.60 trillion of the domestic debt of the FGN. This is higher than the target of 25 percent under the debt management strategy, meaning that the FGN could be issuing more of FGN Bonds than NTBs going forward.
This strategy will achieve two things: reduce the weighted average cost of borrowing for the government because the interest rate on the 364-Day NTB is higher than the interest rate on the FGN Bonds; and extend the tenor of the FGN debts.
Many corporate and individual borrowers have criticized the crowding out effect of the NTBs due to their high yields. The average yield on the 364-Day NTB in 2016 stood at 16.15 percent while the average yield between January 2017 and August 2017 stood at 22.91 percent.
From the monetary policy perspective, the high yields may be necessary to tame high inflation and protect the value of the local currency – it however constitutes a drain on the inadequate revenue of the FGN.
The International Monetary Fund (IMF) noted earlier in August 2017 that preliminary data for the first half of 2017 indicates significant revenue shortfalls, with the interest-payments to revenue ratio remaining high, at 40 percent as at the end of June 2017, and projected to increase further under current policies.
The DMO in its 2016 Debt Sustainability Analysis (DSA) report notes that the debt service-to-revenue ratio (for FGN only) breached the country’s specific threshold of 28 percent. The DSA report added that the FGN debt portfolio still remains highly vulnerable to persistent shocks in revenue, indicating a potential challenge in maintaining debt sustainability.
The total amount of debt service in 2016 stood at N1.20trn and represents 58 percent of the federal allocation disbursed to the FGN.
As at March 2017 the total debt service stood at N449 billion representing 82 percent of the total FGN allocation of N549 billion for the period.
We note that FGN revenue has been challenged in the last two years on account of a drop in oil revenue.
Thus, the plan of the FGN is to use the refinancing to lower debt service figures taking advantage of the relatively lower interest rate in the international financial markets. The FGN will have to put in place strategies to manage the currency risks associated with foreign borrowing.
The average yield on the FGN 6.375 percent July 2023 Eurobond from January till August 21, 2017 is 5.94 percent compared with 364-Day NTB of 22.91 percent.
The various efforts of the government should also increase revenue accruable to the country and the FGN.
By Adedapo Adesanya
The duo of Geo-Fluids Plc and Afriland Properties Plc propelled the NASD Over-the-Counter (OTC) Securities Exchange up 0.13 per cent on Friday, January 10.
Investors gained N1.4 billion during the trading session after the market capitalisation of the bourse ended at N1.053 trillion compared with the previous day’s N1.052 trillion, and the NASD Unlisted Security Index (NSI) increased at the close of business by 4.07 points to wrap the session at 3,073.93 points compared with 3,069.86 points recorded at the previous session.
Geo-Fluids added 25 Kobo to its value to close at N4.85 per unit compared with the previous session’s N4.60 per unit, and Afriland Properties Plc gained 24 Kobo to close at N16.25 per share versus Thursday’s closing price of N16.01 per share.
There was a 35.4 per cent fall in the volume of securities traded in the session as investors exchanged 4.3 million units compared to 6.6 million units traded in the preceding session, the value of shares traded yesterday went down by 37.4 per cent to N17.2 million from the N27.5 million recorded a day earlier, and the number of deals decreased by 47.2 per cent to 19 deals from the 36 deals recorded in the preceding day.
FrieslandCampina Wamco Nigeria Plc remained the most active stock by value (year-to-date) with 1.9 million units worth N74.2 million, followed by 11 Plc with 12,963 units valued at N3.2 million, and Industrial and General Insurance (IGI )Plc with 10.7 million units sold for N2.1 million.
IGI Plc closed the day as the most active stock by volume (year-to-date) with 10.6 million units sold for N2.1 million, trailed by FrieslandCampina Wamco Nigeria Plc with 1.9 million units valued at N74.2 million, and Acorn Petroleum Plc with 1.2 million units worth N1.9 million.
By Adedapo Adesanya
The Naira witnessed a depreciation on the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Friday, January 10.
According to data from the FMDQ Exchange, the local currency weakened against the greenback yesterday by 0.12 per cent or N1.80 to sell for N1,543.03/$1 compared with the preceding day’s N1,541.23/$1.
The pressure on the domestic currency came as the access granted to the Bureaux de Change (BDC) operators by the Central Bank of Nigeria (CBN) to purchase FX from the official market through the Electronic Foreign Exchange Matching System (EFEMS) platform prepares to end next week, precisely on January 19.
The CBN had given a 42-day window to the operators to access the platform to help stabilise the Naira in December, and this expires next week.
On Friday, the Nigerian currency tumbled against the Pound Sterling in the official market by N30.78 to sell for N1,889.29/£1 compared with the previous day’s N1,858.51/£1, but gained N5.48 against the Euro to finish at N1,583.81/€1, in contrast to Thursday’s rate of N1,589.29/€1.
As for the parallel market, the Nigerian Naira remained stable against the US Dollar during the trading session at N1,650/$1, according to data obtained by Business Post.
In the cryptocurrency market, it was bearish as the US economy added 256,000 jobs last month, the Bureau of Labor Statistics reported on Friday, topping forecasts for 160,000 and up from 212,000 in November (revised from an originally reported 227,000).
However, the readings came after a number of recent economic reports triggered a broad-market pullback across asset classes such as crypto as investors quickly scaled back the idea of a continued series of Federal Reserve rate cuts in 2025.
Cardano (ADA) fell by 3.6 per cent to trade at $0.921, Solana (SOL) slumped by 2.8 per cent to $185.93, Ethereum (ETH) depreciated by 1.4 per cent to $3,233.27, Litecoin (LTC) lost 1.3 per cent to finish at $103.62, Dogecoin (DOGE) shed 0.5 per cent to sell at $0.3315, Bitcoin (BTC), waned by 0.2 per cent to $94,154.43, and Binance Coin (BNB) went south by 0.1 per cent to $693.30.
On the flip side, Ripple (XRP) jumped by 1.5 per cent to settle at $2.34, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) sold flat at $1.00 each.
By Dipo Olowookere
Profit-takers took control of Customs Street on Friday, plunging it by 0.08 per cent at the close of trading activities.
The sell-offs were across all the key sectors of the Nigerian Exchange (NGX) Limited on last trading session of the week.
The insurance space went down by 1.53 per cent, the banking index depreciated by 0.41 per cent, the consumer goods sector weakened by 0.16 per cent, and the energy counter slumped by 0.08 per cent, while the industrial goods sector closed flat.
At the close of business, the All-Share Index (ASI) tumbled by 79.68 points to 105,451.06 points from 105,530.74 points and the market capitalisation retreated by N48 billion to N64.303 trillion from N64.351 trillion.
Yesterday, investors traded 1.5 billion shares worth N19.4 billion in 12,877 deals compared with the 489.5 million shares worth N13.1 billion transacted in 13,010 deals in the preceding day, indicating a decline in the number of deals by 1.02 deals and a rise in the trading volume and value by 203.14 per cent and 48.09 per cent, respectively.
Wema Bank was the busiest stock with 976.2 million units valued at N9.8 billion, Tantalizers traded 53.0 million units worth 129.6 million, Universal Insurance sold 34.8 million units for N26.8 million, Access Holdings exchanged 33.9 million units valued at N843.8 million, and Nigerian Breweries traded 27.3 million units worth N873.3 million.
The heaviest loss was suffered by Sunu Assurances with a decline of 9.99 per cent to trade at N7.30, Eunisell shed 9.96 per cent to N17.35, SAHCO crumbled by 9.87 per cent to N30.15, DAAR Communications plunged by 9.28 per cent to 88 Kobo, and Sovereign Trust Insurance went down by 7.04 per cent to N1.32.
On the flip side, C&I Leasing gained 10.00 per cent to close at N4.51, Honeywell Flour appreciated by 9.99 per cent to N10.02, Trans Nationwide Express jumped by 9.89 per cent to N2.00, RT Briscoe rose by 9.83 per cent to N2.57, and Secure Electronic Technology grew by 9.46 per cent to 81 Kobo.
Business Post reports that the bourse ended with 33 price gainers and 25 price losers, indicating a positive market breadth index and strong investor sentiment.
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