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CBN Guidelines for Granting Liquid Asset Status to Sukuk

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  • CBN Guidelines for Granting Liquid Asset Status to Sukuk

In a related development, in view of the need to foster financial system and economic growth and development, as well as complement the efforts of government at various levels, the Central Bank of Nigeria (CBN) yesterday unveiled the guidelines for granting liquid asset status to Sukuk Instruments issued by state governments.

The central bank stated in the document listed on its website, that the move was to enhance the diversification of sources of funding for development at the sub-national levels.

Consequently, members of the public and relevant stakeholders were requested to note the guidelines for operations in the Nigerian financial markets.

It explained that the Sukuk issuance by any state shall be backed by a law enacted by the relevant State House of Assembly, specifying that a sinking fund to be fully funded from the consolidated revenue fund account of the state be established. Also, the state government shall have in place a fiscal responsibility law, with provisions for public debt management, in order to enhance investor confidence.

In addition, the state government shall establish a debt management department in order to ensure transparency and professional management of debt issues.

“The Sukuk shall, at inception and throughout its tenor, be of investment grade as determined by a rating agency accredited by the Securities and Exchange Commission (SEC). A SEC confirmation that the proceeds have been disbursed in line with the provisions of the prospectus shall be submitted to the Director, Financial Policy and Regulation Department (FPRD) of the CBN at the anniversary of the Sukuk issuance.

“Subsequently, SEC confirmation shall be required on amounts that have not been disbursed by the first anniversary. Repayment structure shall be from a funded sinking fund account (supported by a legislated irrevocable standing payment order (ISPO) and/or other legislated sources of repayments disclosed in the offer documents).

“The Trustee(s) to the Sukuk shall submit to Director, FPRD, CBN every six months: (a) a statement of accounts of the sinking funds’ investments and (b) a statement of declaration on the sufficiency of the sinking funds’ investments and investment income in meeting maturing and redemption obligations.

“The Trustees shall advise the Director, FPRD, CBN on the action taken in the event that the Trustees are of the opinion that the sinking fund may be insufficient or there may be the likelihood of default, in line with Sections 255 and 256 of the Investment and Securities Act, 2007 or any amendment thereto.

“The Accountant General of the State shall issue an Irrevocable Letter of Authority to deduct at source from the statutory allocation due to the state, approved by the Federal Minister of Finance, in the event of default by or failure of the state to meet its payment obligations,” the central bank stated in the 11-page document.

In addition, it stated that the maximum investment a bank shall make in any Sukuk issuance of a state government or its agencies is limited to 10 per cent of the total amount outstanding of that Sukuk. This is an investment limit per issue and not per issuer.

Also, the aggregate portfolio of a bank in Sukuk issued by state governments and their agencies shall not exceed 30 per cent of the bank’s total portfolio in debt securities.

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.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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