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Banks Deploy N1.2trn to Govt Securities as Pressure on Exchange Rate Resumes

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Money market activities closed, weekend, with a record N1.2 trillion over subscription to the Nigerian Treasury Bills, NTB, indicating that financial institutions are cashing-in heavily on the recent jerk-up of the Monetary Policy Rates, MPR, by the Monetary Policy Committee, MPC, of the Central Bank of Nigeria, CBN.

The MPR at 14 per cent would give higher returns on investments in fixed income and government securities, with a near zero risk compared to other financial market investments and lendings to other sectors of the economy. The subscription rates for the instruments, last week, ranged from 17–18 per cent.

The investments in NTB were also coming at the backdrop of N256 billion mopped up by the apex bank in its open market operation, OMO, a development which treasury dealers said indicated that CBN’s policy was pro-government securities.

They also said the policy helped reduce demand pressure on foreign exchange market while safeguarding both the exchange rate and the external reserves.

But developments in the inter-bank foreign exchange market, last weekend, indicated a renewed pressure on the exchange rate as demands appeared to be heavily outstripping supply, a situation which forced the apex bank to intervene with supplies twice last week.

Despite the intervention, naira depreciated significantly in the inter-bank spot market, closing at N332.1/USD1.0, weekend, down from N318.9/USD1.0 previous weekend.

Also, the huge cash flow to the government securities, according to the analysts, has led to starving of funds to other sectors of the economy, especially the manufacturing sector as banks now prefer trading in fixed income money market instruments where yields have risen recently with little or no risk.

Senior Analyst at CardinalStone Partners, a Lagos-based investment house, Tiffany Odugwe, said: “Given the currently high interest rate environment following the MPC’s decision to hike the MPR to attract foreign investments, yields may rise throughout August.

“However, at currently attractive levels, healthy demand for these securities may drive yields down but not to significantly lower levels. Also, given the need to manage foreign exchange rate, we do not see the CBN relaxing its tight grip on system liquidity soon, which implies that fixed income yields will likely remain high.”

Also, analysts point to the adverse side effect of this development on the equities market as cash are being redeployed from stock market to money market instruments.

According to Odugwe, “if yields continue to inch upward or even remain at current levels, there will be a crowd out effect on the equities market. Investors will gravitate towards the relatively safer returns that fixed income securities offer and that will mean a continued dismal performance for the equities market.”

Analysts at WSTC Financial Services Limited, another Lagos-based investment house, stated: “We expect attractive yields in the fixed income market to shift investors’ focus from equities.”

Yet some of them also see a steady rise in lending rates as another downside effect of the diversion of funds to government securities.

In their reactions to this money market development analysts at Greenwich Trust Limited, another Lagos-based financial institution, said: “We expect an uptick in lending rates to the real sector from deposit money banks as the MPC has completely reversed course after monetary easing in November 2015, when the MPR was cut from 13.0 per cent to 11.0 per cent failed to generate the credit growth the CBN anticipated.”

Prime lending rates across banks have since gone beyond 20 per cent with other lending rates trending above 30 per cent in the past two weeks.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Energy

Africa Renewable Energy Fund II Secures €125 Million First Close With SEFA and CTF Investments

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Solar energy - Investors King

The Africa Renewable Energy Fund II has achieved its first close at €125 million, following a joint investment of €17.5 million from The Sustainable Energy Fund for Africa and the Climate Technology Fund through the African Development Bank.

AREF II, a successor to the original Fund, is a 10-year closed-ended renewable energy Private Equity Fund with a $300 million target capitalization. The Africa Renewable Energy Fund II, managed by Berkeley Energy, invests in early-stage renewable energy projects, thereby not only de-risking the most uncertain phase of power projects, but also promoting increased green baseload in Africa’s generation mix.

The Sustainable Energy Fund for Africa and the Climate Technology Fund will each contribute roughly €8.7 million to mobilize private-sector investment into Africa’s renewable energy sector. The Sustainable Energy Fund for Africa will also contribute financing to the AREF II Project Support Facility, which funds technical assistance and early-stage project support to improve bankability.

Other investors include the U.K’s CDC Group, Italy’s CDP, the Netherlands Development Finance Company (FMO) and SwedFund.

“We are proud to be associated with Berkeley Energy and other like-minded investors, and look forward to AREF’s continued success and leadership in promoting sustainable power development on the continent,” said Dr. Kevin Kariuki, the African Development Bank’s Vice President for Power, Energy, Climate and Green Growth.

In 2012, the African Development Bank selected Berkeley Energy, a seasoned fund manager of clean energy projects in global emerging markets to set up AREF. AREF II has a sharper strategic focus than its predecessor on “green baseload” projects that will deliver firm and dispatchable power to African power systems through hydro, solar, wind and battery storage technologies.

Luka Buljan, Berkeley Energy’s Managing Director, said: “We are very excited to have reached this milestone with strong support from our backers. The catalytic tranche from the Sustainable Energy Fund for Africa and the Climate Technology Fund will assist in mobilising private institutional investors up to full fund size of €300 million. We now look forward to concluding the fundraising and delivering projects that will provide clean, reliable and affordable energy across African markets.”

“AREF is intertwined with the Sustainable Energy Fund for Africa’s history and success, and we have worked closely over the last decade to create precedents in difficult markets and challenging technologies. We look forward to continued collaboration to accelerate the energy transition in Africa,” said Joao Duarte Cunha, Manager for Renewable Energy Initiatives at the African Development Bank and Coordinator of the Sustainable Energy Fund for Africa.

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Crude Oil

FG Earned $34.22B From Crude Oil and Gas in 2019 – NEITI

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Crude oil - Investors King

The Nigeria Extractive Industries Transparency Initiative (NEITI) on Thursday released its 2019 oil and gas industry audit report, which shows that Nigeria earned N34.22 billion from the oil and gas industry in 2019.

The audit, conducted by Adeshile Adedeji & Co. (Chartered Accountants), an indigenous accounting and auditing firm, reconciled payments from 98 entities. They include 88 oil and gas companies, nine government agencies and the Nigerian Liquefied Natural Gas (NLNG).

The 2019 figure is an increase of 4.88 percent over the $32.63billion revenue realised from the sector in 2018. A breakdown of the earnings showed that payments by companies accounted for $18.90billion, while flows from federation sales of crude oil and gas accounted for $15.32billion.

The report further showed that 10 years (2010-2019) aggregate financial flows from the oil and gas sector to government amounted to $418.544billion, with the highest revenue flow of $68.442 recorded in 2011, while the lowest revenue flow of $17.055 was recorded in 2016.

According to NEITI, the total crude oil production in 2019 was 735.244mmbbls, representing an increase of 4.87 percent over the 701.101mmbbls recorded in 2018. Production sharing contracts (PSCs) contributed the highest volumes of 312.042mmbbls followed by Joint Venture (JV) and Sole Risk (SR) which recorded 310,284mmbbls and 89.824mmbbls respectively. Others are Marginal Fields (MFs) and Service Contracts (SCs) which accounted for 21,762mmbbls and 1,330mmbbls respectively.

The report also showed that total crude oil lifted in 2019 was 735.661mmbbls, indicating a 4.93 percent increase to the 701.090 mmbbls recorded in 2018, with companies lifting 469.010mmbbls, while 266.650mmbbls was lifted by the Nigeria National Petroleum Corporation (NNPC) on behalf of the federation.

Analysis of crude oil lifted by NNPC showed that 159.411mmbbls was for export, while 107.239mmbbls was for domestic refining. 97 percent of the volumes for domestic refining (104.475mmbbls) was utilised for the Direct Sale Direct Purchase (DSDP) programme while the remaining 3 percent (2.764mmbbls) was delivered to the refineries.

NEITI reported that the value of the 2019 domestic crude oil earnings was N2.722 trillion. Of this figure, N518.074billion was deducted for Petroleum Motor Spirit (PMS) under-recovery by the NNPC.

This figure was N213.074billon above the approved sum of N305billion for under-recovery in 2019. Similarly, the sum of N126.664billion was incurred by the Corporation as costs for pipeline repairs and maintenances which showed a difference of N96.378billion from the approved sum of N30.287billion for that purpose.

The report also pointed out that N31.844billion was also deducted for crude and product losses due to theft.

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Crude Oil

Oil Prices Drop on Stronger U.S Dollar

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Crude oil - Investors King

The strong U.S Dollar pressured global crude oil prices on Thursday despite the big drop in U.S crude oil inventories.

The Brent crude oil, against which Nigerian oil is priced, dropped by 74 cents or 1 percent to settle at $73.65 a barrel at 4.03 am Nigerian time on Thursday.

The U.S West Texas Intermediate crude oil depreciated by 69 cents or 1 percent to $71.46 a barrel after reaching its highest since October 2018 on Wednesday.

Energy markets became so fixated over a robust summer travel season and Iran nuclear deal talks that they somewhat got blindsided by the Fed’s hawkish surprise,” said Edward Moya, senior market analyst at OANDA.

The Fed was expected to be on hold and punt this meeting, but they sent a clear message they are ready to start talking about tapering and that means the dollar is ripe for a rebound which should be a headwind for all commodities.

The U.S. dollar boasted its strongest single day gain in 15 months after the Federal Reserve signaled it might raise interest rates at a much faster pace than assumed.

A firmer greenback makes oil priced in dollars more expensive in other currencies, potentially weighing on demand.

Still, oil price losses were limited as data from the Energy Information Administration showed that U.S. crude oil stockpiles dropped sharply last week as refineries boosted operations to their highest since January 2020, signaling continued improvement in demand.

Also boosting prices, refinery throughput in China, the world’s second largest oil consumer, rose 4.4% in May from the same month a year ago to a record high.

This pullback in oil prices should be temporary as the fundamentals on both the supply and demand side should easily be able to compensate for a rebounding dollar,” Moya said.

 

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