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Interbank Rate Rises on Cash Outflow

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  • Interbank Rate Rises on Cash Outflow

The Nigerian Interbank Offered Rates (NIBOR) closed at an average of 11.5 per cent on Friday, up from the seven per cent it was the preceding Friday as payments for bond and treasury bills purchases drained liquidity from the money market.

The Debt Management Office last week raised N214.95 billion from local currency bonds at its first auction this year, with payment for the bonds due last Friday.

According to Reuters, traders said the lending rate jumped on Friday as some banks scrambled for cash to pay for bonds and treasury bills.

Meanwhile, activities in the money market last week remained dictated by system liquidity. The week opened with improved system liquidity of N256.7 billion, indicating a N91 billion increase as against previous Friday. During the week, the CBN sold N208.9 billion worth of open market operations (OMO) instruments and N268.9 billion of treasury bills. The Treasury bills market experienced mixed sentiment during the week as average yield rose on two out of five sessions. The week started with sell-offs across short to medium term instruments as investors positioned for the OMO auction (143-day and 297-day instruments issued at 18.0% and 18.6% marginal rates) announced by the CBN.

“In the week ahead, there are no maturing securities and we expect money market rates to trade in double digits barring any major inflow into the system, while activities in the treasury bills market trade mildly bullish,” analysts at Afrinvest Africa Limited stated.

Forex Market Review

Activities in the foreign exchange (forex) market last week remained besieged by liquidity crunch in all segments of the market. At the Interbank, the CBN continued daily dollar interventions in order to meet some dollar demands and also contain intra-day interbank rate movement on all days during the week.

Accordingly, interbank rate hovered within a tight band of N305.25/$ and N305.5/$ at market close during the week. On the other hand, rates at the parallel market experienced some volatility as the naira recorded marginal gains against the dollar – appreciating to N495/$ – as the CBN resumed sales of the greenback to BDCs at the start of the week before depreciating to N498/$1 on Friday.

At the futures market, the value of open FX Futures contract at the end of the week rose to $3.9 billion from $3.8 billion last week.

However, the first monetary policy committee (MPC) meeting for 2017 will holding this week and analysts anticipate that the operations of the FX market and its impact on foreign funds inflow into the Nigerian market will be a talking point at the meeting.

“However, we do not think a major shift in the management of the foreign exchange market will be announced at the end of the meeting. Also, the approval of the Medium Term and Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) with exchange rate projection of N305.00/US$1.00 suggests that the controls in the FX market will persist in the short-term. Thus, we expect rate at the official market to remain at similar level in the week ahead whilst the parallel market remains pressured,” Afrinvest added.

Bond Market Review

Activities in the local bonds market was largely bearish as investors sold–off on a range of instruments in preparation for the Bond auction held mid-week and in response to result of the auction which showed the auctioned instruments were issued at higher yields. Thus, average yield across benchmark bonds rose on all trading sessions save for Monday (down 52bps) and Friday (down 4bps). The week started on a bullish note as yields closed 52bps lower on average but sentiment turned bullish in subsequent sessions with yields closing the week at 16.5% on average, representing a 22bps increase week-on-week.

Similar to the preceding week, the performance of Nigerian Corporate Eurobonds, sentiment was bullish as yields fell across a range of instruments save for the ACCESS 2021 and ACCESS 2017 (which inched higher by 0.2% apiece week-on-week) as well as FIRST BANK 2021 (up 4bps week-on-week).

Coincidentally, the FIRST BANK 2021 commands the highest year-to-date price return (+3.9%), due to strong buying interest earlier in the year, while ACCESS 2021 and ACCESS 2017 have recorded the worst performance with year-to-date losses of 0.2% apiece.

CBN’s Policies

The Governor, Central Bank of Nigeria, Mr. Godwin Emefiele last week debunked the insinuations in some quarters that policies of the government were meant to few the few in the society. He explained that the monetary policy stance of the central bank was always designed to serve the best interest of majority of Nigerians. Emefiele also noted that the “policies were put in place to help Nigeria pull through the hard time.”

He observed that the country found itself in the present situation due to lack of appropriate commitment to economic diversification, especially when the earnings from oil were as high as $140 per barrel, just as he noted that earnings of the government had risen to height of $3.2 billion and fell to about 500m per month recently. According to the governor, there was also a time when the crude oil price stabilised at $105 per barrel over a period of five years.

“What did we do with the huge accretion to the reserves then?” he queried in a statement yesterday.

Emefiele therefore, counseled the critics of the CBN and government policies that “priority will be given to Nigerian masses by managing the limited resources to provide for industrial raw materials, plants and equipment and agricultural inputs in order to create employment and generate wealth.”

Licenced BDCs

The Bureaux De Change (BDCs) licenced by the CBN are not part of parallel market operators, the Association of Bureaux De Change Operators of Nigeria (ABCON) declared last week. ABCON President, Aminu Gwadabe, in a statement, distanced his members from the activities of parallel market operators, which have constituted major setback to naira’s stability. He insisted that CBN-licenced BDCs are not parallel market operators as misconstrued by a large section of the public and even top government officials. Gwadabe disclosed that CBN-licenced BDCs, which are 3,147 operators at present, are key partners of the CBN in ensuring the stability and competiveness of the naira against world currencies, including the dollar.

He said licensed operators had been given up to December 31 by the CBN to renew their annual licensing fee of N250,000, are registered with the Corporate Affairs Commission (CAC) and with each operator meeting the mandatory N35 million capital base stipulated by the apex bank.

Gwadabe disclosed that the Finance Minster, Mrs. Kemi Adeosun severally accused the BDC parallel market operators of contributing to the continuous depreciation of the naira, but insisted the licensed BDCs do not fall within the category being described by the minister because they operate based on set guidelines.

The ABCON chief said the licensed BDCs, not only have their operational offices, they file reports with the Federal Inland Revenue Services (FIRS) and belong to ABCON, which is recognised by the apex bank as the umbrella body for licensed BDCs.

Gwadabe said the licensed BDCs are committed to naira’s stability at both official and parallel markets, and have consistently partnered with the CBN to achieve this objective.

Bitcoins, Virtual Currencies

The central bank last week warned commercial banks, other financial institutions under its regulation as well as Nigerians against transacting business in anyway with the use of virtual currencies (VCs). Some types of VCs include Bitcoins, litecoin, darkcoin and peercoin. The central bank also advised banks to ensure that existing customers that are virtual currency exchangers, have effective Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) controls that would enable them comply with customer identification, verification and transaction monitoring requirements.

“Where banks or other financial institutions are not satisfied with the controls put in place by VC exchangers/customers, the relationship should be discontinued immediately; and any suspicious transactions by these customers should immediately be reported to the Nigerian Financial Intelligence Unit (NFIU),” it added.

The CBN noted that the emergence of VCs had attracted investments in payments infrastruture that provides new methods for transmitting value over the internet. Transactions in VCs are largely untraceable and annonymous making them susceptible to abuse by criminals, especially in money laundering and financing of terrorism, the central bank stated.

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.

Finance

Global Credit Rating Affirms Sovereign Trust Insurance A Rating

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Global Credit Rating Affirms Sovereign Trust Insurance A Rating

Global Credit Rating, an international rating agency based in South Africa, has affirmed Sovereign Trust Insurance Plc A rating in its latest report released for the month of December 2020.

In a statement released through the Nigerian Stock Exchange (NSE), Global Credit Rating noted “that the Company has shown a great deal of consistency in her claims paying obligations to her numerous customers spread all over the country.

The Report further stated that “the listing of the Rights Issue in 2019 helped in increasing the Shareholders’ funds of the Company by 33.8%, to N7.8b by the end of the Financial year in 2019 as against the figure of N5.8b in 2018.

“Subsequently, by the third quarter of 2020, the Shareholders’ funds had increased to N8.2b which also translated to a 31% increase in the corresponding period of 2019 with a figure of N6.3b. In the Rating Agency’s opinion, Sovereign Trust Insurance Plc is strong in liquidity with more than adequate claims coverage that compares well to industry averages.

“The capital adequacy of the Underwriting Firm is considered strong according to the rating report and this is underpinned by the sizeable capital base catering for the quantum of insurance and market risks assumed. In this regard, the ratio of Shareholders’ funds to NEP, (Net Earned Premium) improved to 189.2% in the Q3 of 2020 as against 130.9% in the corresponding quarter of 2019.

In terms of peer-to-peer performance comparison, “Sovereign Trust Insurance Plc did very well when compared with other selected insurers in terms of Capital, Total Assets, Gross Premium Income (GPI) and Net Premium Income (NPI).”

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Banking Sector

Sub Saharan Africa Mergers and Acquisition Transactions Totalled US$ 25.7 Billion in 2020

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Sub Saharan Africa Mergers and Acquisition Transactions Totalled US$ 25.7 Billion in 2020

South Africa – Refinitiv today released the 2020 investment banking analysis for the Sub-Saharan African. According to the report, an estimated US$523.7 million worth of investment banking fees were earned in Sub-Saharan Africa during 2020, down 15% from 2019 and the lowest annual total in six years.

Fee declines were recorded across M&A advisory, debt capital markets underwriting, and syndicated lending.  Advisory fees earned from completed M&A transactions generated US$108.3 million, down 55% year-on-year to the lowest level since 2013.  Debt capital markets underwriting fees declined 13% to US$64.9 million, a four-year low, while syndicated lending fees fell 3% to US$263.0 million. Equity capital markets underwriting fees totalled US$87.5 million, almost three-times the value recorded during 2019.

Fees generated in the energy & power sector account for 26% of total investment banking fees earned in the region during 2020, up from 10% during the same period last year, while the financial and technology sectors account for 17% and 13% respectively.  South Africa generated the most fees in the region, a total of US$279.9 million accounting for 53%, followed by Mozambique with 14%. Boosted by lending fees, Sumitomo Mitsui Financial Group earned the most investment banking fees in the region during 2020, a total of US$57.3 million or an 11% share of the total fee pool.

MERGERS & ACQUISITIONS

The value of announced M&A transactions with any Sub-Saharan African involvement reached US$25.7 billion during 2020, 62% less than the value recorded during 2019 when Naspers’ US$35.9 billion internet assets spin-off boosted merger activity to an all-time high.  The value of deals recorded during 2020 is the lowest annually since 2012.  The number of deals declined 5% from last year to a seven-year low.

The value of deals with a Sub-Saharan African target declined 39% to a sixteen-year low of US$12.5 billion as domestic M&A within the region declined 44% from last year and the combined value of inbound deals reached just US$7.1 billion, the lowest annual total since 2009.

Chemicals company Sasol agreed to sell a US$2.0 billion stake in LyondellBasell in October, the largest deal in the region during 2020.  Boosted by this deal, materials was the most active sector for deal making during 2020, accounting for 23% of Sub-Saharan African target M&A activity, followed by energy & power (19%) and technology (17%).  South Africa was the most targeted nation, followed by Uganda. Outbound M&A reached a three-year high of US$6.0 billion during 2020, 13% more than the value recorded during 2019.  The value was boosted by Angolan state-owned Sonangol’s purchase of PT Ventures from Africatel Holdings for US$1.0 billion and Templar Investments’ US$1.0 billion offer for Jindal Steel’s Oman unit. With advisory work on twenty deals worth a combined U$4.4 billion, JP Morgan holds to the top spot in the financial advisor ranking for deals with any Sub-Saharan African involvement during 2020.

EQUITY CAPITAL MARKETS

Sub-Saharan African equity and equity-related issuance reached US$2.5 billion during 2020, 54% more than the value recorded during the previous year, but lower than every other annual total since 2005.  The number of deals recorded increased 19% from 2019 but was lower than any other yearly tally since 2012.  One initial public offering was recorded during 2020, compared to three in 2019.  Malawian telecoms company, Airtel Malawi, raised US$28.7 million on the Malawi Stock Exchange in February. JP Morgan took first place in the Sub-Saharan African ECM underwriting league table during 2020.

DEBT CAPITAL MARKETS

The African Development Bank raised $3 billion in a “Fight Covid-19” social bond at the end of March to help alleviate the economic and social impact the Coronavirus pandemic will have on livelihoods and economies in the region.  With this deal, and Ghana’s US$3 billion Eurobond in February, Sub-Saharan African debt issuance totalled US$8.9 billion during the first quarter of 2020, the second-highest first quarter DCM total in the region of all-time.  Only US$1.9 billion was raised during the second quarter, the lowest quarterly total in eight years, followed by US$4.0 billion during the third quarter.  Prosus raised US$2.2 billion in December, boosting fourth quarter bond issuance in the region to US$4.3 billion.  The total proceeds raised during 2020 is US$19.0 billion, down 30% from last year and a four-year low.

Deutsche Bank took the top spot in the Sub-Saharan African bond underwriter ranking during 2020 with US$2.6 billion of related proceeds, or a 13% market share.

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Finance

DF Holdings Limited Purchases 474,603,596 Shares of AIICO

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AIICO insurance

DF Holdings Limited Purchases 474,603,596 Shares of AIICO

A majority shareholder in AIICO Insurance Plc, DF Holdings Limited, has increased its stake in the company by purchasing additional shares of 474,603,596.

In a disclosure statement published through the Nigerian Stock Exchange (NSE) and signed by Donald Kanu, the Company Secretary, AIICO, DF Holdings Limited purchased the shares on 31, December 2020 from the Nigerian Stock Exchange in Lagos Nigeria.

The 474,603,596 shares were purchased at N1.17k per share. Meaning, DF Holdings Limited invested N555.286 million in AIICO Insurance. See the details below.

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