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
For the first time in a while, the value of the Nigerian Naira improved against its United States counterpart, the Dollar, in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Wednesday, March 11.
At the midweek session, it gained N25.21 or 1.8 per cent on the greenback in the official market to trade at N1,376.19/$1 compared with the previous day’s value of N1,401.40/$1.
It was also a positive outcome for the Naira in the spot market, as it appreciated against the Pound Sterling yesterday by N40.26 to close at N1,845.47/£1 versus Tuesday’s value of N1,885.73/£1, but closed flat against the Euro at N1,631.51/€1.
At the GTBank FX desk, the Nigerian currency appreciated against the Dollar yesterday by N9 to settle at N1,407/$1, in contrast to the N1,416/$1 it was exchanged a day earlier, and in the black market, it maintained stability at N1,420/$1.
The FX market pressure eased from a two-month low, as foreign reserves topped the $50 billion mark for the first time since January 2009, buoyed by a positive oil price threshold and forex inflows that could strengthen the current account balance and improve FX liquidity.
Inflows into the FX market have strengthened in recent weeks, but likewise, the US Dollar has strengthened in the international market due to the recent crisis facing the global markets involving the United States, Israel, and Iran.
As for the digital currency market, it was mixed on Wednesday amid renewed Middle East tensions, as on-chain data show persistent selling pressure and weak demand as investors grapple with conflict-driven stagflation fears and fading prospects for near-term Federal Reserve rate cuts ahead of next week’s meeting.
Solana (SOL) slumped 0.9 per cent to $85.11, Ripple (XRP) declined by 0.6 per cent to $1.38, Bitcoin (BTC) dropped 0.4 per cent to sell for $69,433.43, and Cardano (ADA) depreciated 0.2 per cent to $0.2591.
But TRON (TRX) added 1.0 per cent to sell at $0.2900, Binance Coin (BNB) gained 0.8 per cent to close at $644.54, Ethereum (ETH) appreciated by 0.5 per cent to $2,027.98, and Dogecoin (DOGE) grew by 0.2 per cent to $0.0919, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
By Adedapo Adesanya
Oil prices appreciated by nearly 5 per cent on Wednesday as fresh attacks on ships in the Strait of Hormuz worsened supply disruption fears.
Brent futures gained $4.18 or 4.8 per cent to settle at $91.98 a barrel, while the US West Texas Intermediate (WTI) futures increased by $3.80 or 4.6 per cent to $87.25 a barrel.
Three more vessels have been hit by projectiles in the Strait of Hormuz, maritime security and risk firms said on Wednesday. That brought the number of ships struck in the region to at least 14 since the Iran war began.
Iran warned that no oil shipments will be allowed to pass through the Strait of Hormuz until the attacks stop, placing the world’s most critical oil trade point at the centre of the escalating conflict. The narrow waterway between Iran and Oman normally handles roughly 20 per cent of global oil supply and a large share of liquified natural gas (LNG) trade, making any sustained disruption a major threat to global energy markets.
Tanker movements through the region have already begun slowing as insurers and ship operators reassess the risks of transiting the corridor.
The country, which is one of the largest producers in the Organisation of the Petroleum Exporting Countries, on Wednesday said that crude could surge to $200 per barrel if the war involving the US and Israel continues to destabilise the Middle East’s energy corridors.
Crude briefly surged to around three digits earlier this week before retreating toward the $90 range after US President Donald Trump suggested the conflict might end soon. However, renewed attacks on shipping and infrastructure have quickly revived fears of supply disruptions.
Meanwhile, the International Energy Agency (IEA) recommended the release of 400 million barrels of oil, the largest such move in its history, to try to rein in energy prices, which are now up more than 25 per cent since the war began. The energy watchdog said the time frame for the release will be decided in due course.
The proposed volume is more than double the 182 million barrels released in 2022 following Russia’s invasion of Ukraine. Analysts, however, said it was ultimately insufficient to resolve supply losses from a prolonged war in the Middle East.
Member countries collectively hold roughly 1.2 billion barrels of strategic reserves, which can be tapped during supply emergencies.
Crude oil inventories in the US increased by 3.8 million barrels during the week ending March 6, according to data from the US Energy Information Administration (EIA). The EIA’s data release follows figures from the American Petroleum Institute (API) that were released a day earlier, which reported that crude oil inventories fell by 1.7 million barrels in the period.
By Dipo Olowookere
The bears consolidated their grip on Nigeria’s stock market by 0.09 per cent on Wednesday due to sustained selling pressure amid global instability.
Yesterday, only two of the five sectors tracked by Business Post ended in green, with the industrial goods up by 1.42 per cent, and the banking sector gained 0.04 per cent.
However, the insurance counter depleted by 0.44 per cent, the consumer goods index lost 0.43 per cent, and the energy industry shed 0.06 per cent.
As a result, the All-Share Index (ASI) deflated by 167.58 points to 195,898.53 points from 196,066.11 points, and the market capitalisation shrank by N108 billion to N125.750 trillion from N125.858 trillion.
The laggards’ group was led by Presco, which decreased by 10.00 per cent to N2,083.90. UAC Nigeria lost 9.97 per cent to trade at N104.25, Morison Industries crashed by 9.94 per cent to N10.87, SCOA Nigeria gave up 9.86 per cent to quote at N25.15, and Linkage Assurance slipped by 9.83 per cent to N1.56.
On the flip side, NGX Group gained 10.00 per cent to settle at N186.45, Premier Paints expanded by 9.92 per cent to N19.40, Omatek surged by 8.95 per cent to N2.80, Prestige Assurance advanced by 8.39 per cent to N1.68, and Haldane McCall chalked up 6.67 per cent to close at N4.00.
The market breadth index remained negative after the bourse finished with 30 appreciating equities and 42 depreciating equities, indicating weak investor sentiment.
Wema Bank was the busiest stock at midweek, with a turnover of 106.4 million units for N2.8 billion. Access Holdings traded 59.0 million units worth N1.5 billion, Mutual Benefits sold 38.5 million units valued at N183.2 million, Fortis Global Insurance transacted 32.7 million units worth N40.3 million, and Sterling Holdco exchanged 30.2 million units valued at N219.1 million.
At the close of transactions, 671.3 million shares worth N26.1 billion exchanged hands in 58,792 deals during the session, in contrast to the 746.9 million shares valued at N27.9 billion transacted in 65,275 deals a day earlier, representing a drop in the trading volume, value, and number of deals by 10.12 per cent, 6.45 per cent, and 9.93 per cent apiece.
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