- Interbank Rates Rise on Cash Shortage
The Nigerian Inter-Bank Offered Rate (NIBOR) climbed by about 20 percentage points on Friday after the Central Bank of Nigeria’s (CBN’s) sale of dollar forwards to offset a backlog of forex obligations drained cash from the money market.
The overnight lending rate stood at 50 per cent on Friday, as against the 29.33 per cent the previous day as commercial lenders scrambled for cash to pay for dollar purchase at a central bank foreign exchange intervention auction targeting certain sectors, Reuters disclosed.
Specifically, the central bank injected a total of $380 million into various sectors of the market and also commenced its weekly $20,000 sale to licenced Bureaux De Change (BDC) operators. A breakdown of this showed that the CBN offered dollars to authorised dealers through 7-45 days wholesale forwards, Basic Travel Allowance, Personal Travel Allowance, medical bills, tuition and Small and Medium Enterprises (SMEs).
The central bank has been intervening on the official market to try to narrow the currency’s spread with the black market rate and this has also put pressure on naira liquidity in the money market causing cost of borrowing among banks to jump.
The lending rate among commercial lenders opened at 70 per cent last Tuesday, but fell to around 29.33 per cent on Thursday after the injection of cash from matured treasury bills repayment by the central bank boosted liquidity.
Traders said market liquidity had opened at N206.96 billion deficit on Friday, compared with a deficit of N239.53 billion last week, putting the money market under pressure to seek funds to finance their forex and treasury bill purchases from the central bank.
“The money market is in repo because of the sales of open market operations treasury bills and funding for special foreign exchange auctions by the central bank, putting the market in a tight position,” one senior currency trader said.
Traders said the cost of borrowing in the interbank money market was likely to fall this week because of expected cash injections from the next round of monthly budgetary allocations to government agencies and repayment of matured treasury bills.
Meanwhile, analysts at Afrinvest Securities Limited have stated that the tight financial system liquidity during the week was evident in the open market operations (OMO) auctions floated by the CBN as the auctions were undersubscribed despite the attractive stop rates. Only N446.7 million was allotted at last Tuesday’s OMO auction, relative to N15 billion offered, while only N223.4 million was allotted at Thursday’s auction, relative to N15 billion offered amount.
Also, in the treasury bills market, performance was bearish on account of tight system liquidity as rates trended upward on three of four trading days. The week opened with average benchmark treasury bills yield inching 64 basis points higher than last week’s close (18.0%).
According to Afrinvest, sentiment remained bearish in the market during the week with minimal trades recorded; hence average yield on treasury bills closed at 18.4 per cent, up 40 basis points week-on-week.
On the primary market, the CBN offered N36.8 billion, N35 billion and N95.7 billion worth of treasury bills respectively for 91-day, 182-day and 364-day maturities on Wednesday as a rollover of the net N167.5 billion scheduled to mature the next day.
“Investors continued to show preference for longer-dated bills as the 364-day instrument was oversubscribed, similar to previous auctions. However, the auction was under allotted as only N12.3 billion, N25.5 billion and N51.8 billion respectively of the 91-day, 182-day and 364-day instruments were allotted at stop rates of 13.6 per cent, 17.4 per cent and 18.9 per cent.
“In the week ahead, we expect system liquidity to remain tight at the start of the week but improve towards the end due to scheduled OMO maturity of N53 billion and bond maturity of N480.4 billion. The CBN is likely to conduct several OMO auctions to mop-up liquidity but we still expect rates to trend lower,” Afrinvest added.
In a bid to ease demand pressure in the unofficial segment of the FX market and deepen access to FX for small and medium scale enterprises (SMEs) and retail businesses which may have been crowded out by larger companies during FX wholesale auctions, the CBN recently introduced a new window for sales of FX to SMEs for visible imports up to US$20,000/quarter. Accessing this window will require the use of the newly introduced Form Q as well as basic documentations (application letter, beneficiary invoice and bank wire transfer details). The apex bank also continued its Special Wholesale Forwards Intervention during the week by offering US$100.0m on Tuesday for trade backed demand with about US$69.5m successful bids recorded.
At the Interbank market, the naira appreciated marginally from N306.05/$1 the preceding week and traded at N306/$1 on all trading days last week.
Similarly, exchange rate at the parallel market also appreciated to N385.00/$1 at the end of the week, from N410.00/$1 the preceding week, after the CBN increased the weekly FX sales to Bureau-De-Change operators to “US$20,000 twice a week” and also continued dollar sales to banks for FX demands for invisibles.
Similarly, two weeks after opening a special foreign exchange (FX) window for SMEs to enable operators import eligible finished and semi-finished items, the CBN on Friday established a fresh widow for investors and exporters tagged: “Investors’ & Exporters’ FX Window”. A circular issued by the CBN disclosed that the purpose of the window was to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.
The circular signed by the Bank’s Director in charge of Financial Markets, Dr. Alvan Ikoku, listed eligible transactions under the new window to include invisible transactions such as loan repayments, loan interest payments, Dividends/Income Remittances, Capital Repatriation, Management Service Fees and Consultancy fees.
Also on the eligible list are Software subscription fees, technology transfer agreements, personal home remittances and any such other eligible transactions including ‘miscellaneous Payments’ as detailed under Memorandum 15 of the CBN Foreign Exchange Manual.
While explaining that the invisible transactions under this window excludes international airlines ticket sales’ remittances, the circular added that the window covered Bills of Collection and any other trade-related payment obligations, which are at the instance of the customer.
The circular further clarified that the permitted invisible transactions and Bills for Collection were eligible to purchase foreign currency sourced from the CBN Forex window limited to Secondary Market Intervention Sales (SMIS) Wholesale (Spot and Forwards) only.
According to the CBN, international airlines ticket sales’ remittances shall only be eligible to access the CBN FX window (SMIS-Retail and Wholesale; spot and forwards.
On participants in the new window, it disclosed that supply of foreign currency to the window shall be through portfolio investors, exporters, authorised dealers and other parties with foreign currency to exchange to naira. The CBN, it added, shall also be a market participant at the window to promote liquidity and professional market conduct.
However, at the FMDQ Naira-Settled OTC Futures market, trading was brought to a halt on all contracts last Wednesday, due to a suspension of CBN’s quotes. Trading is expected to resume this Wednesday.
“The cessation of trades due to the CBN’s suspension of quotes further highlighted the illiquidity in the Futures Market as the CBN remains the only counterparty willing to take a long position on the naira. Interestingly, the NG/US APR 2017 instrument will mature the same day trading is expected to resume. We expect the apex bank to settle the $965.29 million in open contracts and also replace the maturing instrument with an APR 2018 contract.
“In the week ahead, we expect trading activities to resume mid-week at the futures market, as guided by the FMDQ, whilst the apex bank will continue its dollar sales at special wholesale and retail FX intervention auctions for visible and invisibles as well as to BDCs. Hence, we expect the Naira to remain stable at the Interbank and parallel markets,” Afrinvest stated.
Bond Market Review
Despite the significant interest shown by investors in the April Bond auction the preceding week, activity in the secondary market was largely subdued last week owing to the series of Primary Market Auctions (Treasury Bills and OMO) as well as the Special FX interventions by the central bank which squeezed liquidity levels in the financial system.
Consequently, average yield rose four basis points last Tuesday to settle at 16.7 per cent and declined a marginal one basis point on Wednesday on the back of improved interest in short tenored instruments. Sentiment remained positive on Thursday as yields contracted six basis points on average but the trend was reversed on Friday as investors sold off across tenors, taking average yield across maturities to 16.8 per cent, up six basis points week-on-week.
“In the week ahead, we expect to see improved activity level within the bonds market due to scheduled maturity of the 5-year FGN APRIL 2017 bond worth N480.1 billion on 27th April, 2017. The bond maturity is expected to boost liquidity in the financial system with positive impact on trading sentiment as bondholders look to take new positions in the secondary market.”
NNPC Plans Divestment Pathway For Joint Ventures Partnership
The Nigerian National Petroleum Corporation (NNPC) has said it would outline policies to guide its joint venture partners (JVC) that wish to divest from joint ventures or the Nigerian oil and gas industry.
NNPC Group Managing Director, Mele Kyari on Monday said that Nigeria, as a key player in global energy security, was addressing its challenges, mainly fiscal, security and cost competitiveness, to stimulate investments in the oil and gas industry.
Kyari, who spoke in Lagos while delivering an address at the opening ceremony of the Nigeria Annual International Conference and Exhibition said, “NNPC, as a national oil company, is leading multiple initiatives to address this and other issues.
“As we celebrate the passage of the PIB, we have moved our focus to improve security architecture through collaboration with major stakeholders.”
According to him, the Nigerian Upstream Cost Optimisation Programme is working with operators and service contractors to challenge the cost of operations and increase profitability and growth in the industry.
“On the other hand, we are seeing a wave of divestment by oil majors operating in Nigeria. NNPC as a national oil company cannot stop partners from divesting their interest, even though it creates challenges for us in ensuring that we get the right and competent investors to take a position and add value to the assets.
“The NNPC will ensure that Nigeria’s national strategic interest is safeguarded by developing a comprehensive divestment policy that will provide clear guidelines and criteria for divestment of partners’ interest,” Kyari said.
He said the corporation would make clear distinctions between divestment of shares and operatorship agreements under various joint operating agreements while leveraging its rights of pre-emption and evaluating the operational competence and tract records of new partners.
Kyari said in order to sustain a prosperous business environment, particular attention would be paid to abandonment and relinquishment costs, severance of operator staff, third party contract liabilities, competency of the buyer, and post purchased technical, operational and financial capabilities.
He said the NNPC would declare its first dividend to Nigerians as it prepares to release its 2020 financial statements in the third quarter of this year.
The local unit of the Royal Dutch Shell had in May said that its onshore oil portfolio in Nigeria was ‘no longer compatible with its strategic ambitions.
“We have reduced the total number of licenses in onshore Nigeria by half. But unfortunately, our remaining onshore operations continue to be subject to sabotage and theft,” Chief Executive Officer, Ben van Beurden, told investors at the company’s AGM.
Early this year, Shell Petroleum Development Company of Nigeria Limited, Total E&P Nigeria Limited and Nigerian Agip Oil Company Limited concluded the sale of their combined 45 percent interest in Oil Mining Lease 17 and related assets in the Eastern Niger Delta to TNOG Oil and Gas Limited.
Petrol Subsidy Likely to Gulp N2T This Year –Rainoil GMD
Nigeria may end up spending N2 trillion on petrol subsidy this year if the current situation persists, the Group Managing Director, Rainoil Limited, Dr Gabriel Ogbechie, has said.
Ogbechie said this on Sunday at the Nigeria History Series of the Centre for Values in Leadership, themed ‘Indigenous participation in the downstream oil and gas sector’ moderated by Prof. Pat Utomi.
While lamenting the lack of deregulation in the downstream sector, he said the government was spending about N8m daily on petrol subsidy.
He described the sector as highly regulated, saying, “I wonder if there is any other sector of the economy that is as regulated as the downstream.”
He said, “The biggest elephant in the room today as far as the downstream is concerned is the failure, so to speak, of the government to deregulate the downstream – fixing the price at which petroleum products are sold, I believe, is very seriously harmful to this economy.”
According to him, the landing cost of the petrol imported into the country is about N300 per litre, based on the current naira-dollar exchange rate.
Sirius Petroleum and Baker Hughes Collaborate on OML 65 Drilling in Nigeria
Sirius Petroleum, the Africa-focused oil and gas production and development company, has signed a memorandum of understanding with Baker Hughes. The MoU names Baker Hughes as the approved service provider for Phase 1 of the Approved Work Program (AWP) of the OML 65 permit, a large onshore block in the western Niger Delta, Nigeria. Baker Hughes will provide a range of drilling and related services at a mutually agreed upon pricing structure to deliver the initial nine-well program.
Sirius has signed various legal agreements with COPDC, a Nigerian joint venture, to implement this program. COPDC has signed a Financial and Technical Services Agreement (FTSA) with the Nigerian Petroleum Development Company (NPDC) for the development and production of petroleum reserves and resources on OML 65. The FTSA includes an AWP which provides for development in three phases of the block. and Sirius has entered into an agreement with the joint venture to provide financing and technical services for the execution of the PTA.
The joint venture will initially focus on the redevelopment of the Abura field, involving the drilling and completion of up to nine development wells, intended to produce the remaining 2P reserves of 16.2 Mbbl, as certified by Gaffney Cline and Associates (GCA) in a CPR dated June 2021.
Commenting, Toks Azeez, Sales & Commercial Executive of Baker Hughes, said: “We are extremely happy to have been selected for this project with Sirius and their JV partners. This project represents an important step towards providing our world-class integrated well-service solutions in one of the most prolific fields in the Niger Delta. Baker Hughes’ technological efficiency and execution excellence will help Sirius improve its profitability and competitiveness in the energy market.”
Bobo Kuti, CEO of Sirius, commented: “We are delighted to have secured the services of one of the world’s leading energy technology companies to work with our joint venture team to deliver the approved work program on the block. OML 65. We look forward to building a long and mutually beneficial partnership with Baker Hughes.”
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