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Overnight Lending Rate Falls Sharply on Cash Inflow

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  • Overnight Lending Rate Falls Sharply on Cash Inflow

The overnight tenor of the Nigerian Interbank Offered Rates (NIBOR) dropped sharply to an average of 3.9 per cent on Friday from 10 per cent a week ago following an injection of naira liquidity into the banking system.

A total of N454 billion in debt refund to state governments and matured treasury bills entered the system last week, raising liquidity and pushing down borrowing cost among lenders Reuters disclosed.

Traders said the central bank sold around N115.68 billion worth of open market operations treasury bills between Wednesday and Thursday, but the market remained sufficiently liquid to keep rates at below double digits. In the same vein, last week the central bank paid owed monies to state governments, which improved liquidity as did N49 billion distributed from Nigeria’s oil savings excess crude account.

Meanwhile, analysts at Afrinvest West Africa Limited have pointed out that considering the relatively high liquidity level in the system, sentiment in the Treasury Bills (TB) market was largely bullish all through the week as investors took advantage of the attractive yield environment.

Buy interest was noticed across all tenors but with more interest in shorter tenured bills while average TB yield stood at 19.2 per cent on Tuesday and declined to 18.8 per cent on Wednesday. Following a spike in liquidity on Thursday, buy sentiment on TB strengthened further as average yield further declined to 17.8 per cent on Friday.

“All through the week, investors’ interest remained centered on shorter tenored T-bills and this is expected to continue in the coming week, especially given the current system liquidity and closure of T-bills primary market for the year,” Afrinvest stated.

Lending rates could trade flat this week, traders said, as firms and banks close activities for the end of the year.

Bond Market Review

Activity level in the bond market remained soft during the week as investors continued to favour shorter tenored instruments (T-bills) which currently offer attractive yields.

Nevertheless, performance of the bonds market was positive as average yield pared week-on-week across benchmark instruments to settle at 15.8 per cent on Friday.

Similarly, the FGN Eurobonds enjoyed buying interest during the week as average yield across all instruments declined from 6.4 per cent on Tuesday to close the week at 6.3 per cent with the JAN 2021 instrument being the pest performer. Performance of the Corporate Eurobonds was equally bullish as ACCESS 2017 and FIDELITY 2018 instruments fell 0.2% and 1.3% week-on-week respectively.

In the coming week, the DMO will conduct its last Bond auction for the year 2016. The instruments on offer are: JUL 2021 (N30 – 40bn on offer), JAN 2026 (N20 – N30bn on offer) and MAR 2036 (N30bn – 40bn on offer).

” In our view, the trend witnessed in the previous three consecutive bond auctions in which instruments were under allotted on account of higher range of bids will likely persist at the December auction. November 2016 Inflation report due for release this week will drive sentiment. Investors will be looking to see the pace of month-on-month Consumer Price Index (CPI) growth in setting trading strategy for next year. We project a flattish month-on-month movement but still expect Inflation rate to accelerate on year-on-year basis due to low base effect,” Afrinvest added.

Forex Review and Outlook

There was no new development in the foreign exchange market last week as the CBN maintained its daily $1.5 million intervention at a pegged rate of N305/$. Thus, the interbank spot rate was flat at N305/$ Liquidity however remained a bottleneck to performance of the FX market with spread between interbank and parallel rates ranging from N180/$ to N170/$.

Meanwhile, the parallel market remained volatile with exchange rate on the street opening at N484/$ (relative to N482/$ the preceding Friday), but depreciated to N485/$ by Friday.

Amid sustained concerns by investors about the direction of foreign exchange policy and the absence of decisive policy actions to restore confidence in the Nigerian economy, a former deputy governor of the CBN, Mr. Kingsley Moghalu noted in an article published by Financial Times during the week that restoring transparency in the market and a phased approach to structural reforms are key priorities for the central bank and other economic managers.

At the FMDQ OTC derivatives market, the value of FX futures opened contract increased by $73.2 million to $3.8billion from $3.7billion in the previous week. Strong interests were observed in the NGUS JUN 2017, NGUS JUL 2017 and NGUS AUG 2017 contracts which traded at N276/$, N272/$ and N269/$.

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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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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