- Interbank Rates Rise as CBN Sells Treasury Bills, Dollars
Nigeria’s interbank lending rate rose to around 20 per cent on Friday, from five per cent on Thursday, after the central bank sold treasury bills to mop-up excess liquidity and announced plans to sell dollars to businesses.
The interbank rate reflects the level of naira cash liquidity in the banking system.
The central bank said in a notice to commercial lenders on Friday it would sell dollars to manufacturers, airlines, fuel importers and agriculture businesses at a special auction to clear their backlog of foreign exchange obligations.
Traders said the auction and sales of treasury bills left some banks short of liquidity, forcing them to scramble for cash to pay for their purchases on the interbank market. That pushed up the cost of borrowing among lenders.
The central bank sold N86.25 billion worth of 365-day and 195-day treasury bills on Friday in a bid to reduce excess liquidity following the government’s distribution of debt refunds to some states on Monday.
According to Reuters, traders said some banks initially quoted as high as 50 per cent for overnight placement but this fell to around 15-20 per cent toward the market close.
“We expect the interbank rate to trend down further after results of the special forex auction are announced and more liquidity flows into the market,” one currency trader said.
Meanwhile, money market rates trended lower on all trading days of the week save for Friday on the back of higher system liquidity; thus, Open Buy Back (OBB) rates rose five per cent week-on-week to 14 per cent on Friday.
At the start of the week, OBB and overnight rate eased 2.8 percentage points apiece to close at 6.2 per cent and 6.9 per cent respectively (from 9% and 9.8% recorded the preceding Friday) owing to Paris Club loans repayment of N243 billion which hit the system late on Friday of the preceding week.
According to Afrinvest West Africa Limited, the CBN conducted Open Market Operations (OMO) auctions on the first two trading days to squeeze liquidity, selling N19.5 billion and N41.8 billion of OMO bills last Monday and Tuesday respectively, in addition to foreign exchange (FX) auctions last Monday, which had minimal impact on system liquidity.
Nonetheless, financial system liquidity further improved midweek on the back of a FAAC inflow of N462.36 billion; consequently, money market rates continued to moderate in subsequent sessions – OBB and overnight rates settled at 4.8 per cent and 5.3 per cent respectively on Wednesday and closed flat on Thursday as the impact of N97.4 billion OMO maturity was offset by debit for Wednesday’s treasury bills Primary Market Auction (PMA).
The CBN further mopped up N213.9 billion on Friday via an OMO auction, thus, OBB and overnight rates inched higher to 14 per cent and 14.9 per cent on Friday.
“The improved system liquidity at the start of the week triggered buying interest at the treasury bills market as rates trended lower across tenors on all trading days of the week,” Afrinvest West Africa Limited stated.
It revealed that average treasury bills rate closed 13 basis points lower at 18.1 per cent on Monday and the bullish sentiment was sustained till mid-week as rates trended 26 basis points lower despite treasury bills maturity of N97.9 billion and a rollover of N205 billion – implying a net-debit of N107.1 billion.
The CBN offered N36.8 billion of the 91-day, N39.2 billion of the N182-day and N129 billion of the 364-day instruments.
Expectedly, investors positioned at the longer end of the curve as all instruments were undersubscribed and under allotted save for the 364-day instrument.
The CBN allotted N32.4 billion of 91-day bills at stop rate of 13.4 per cent, N26.6 billion of 182-day at 17.4 per cent and N145.9 billion of 364-day at 18.5 per cent respectively. Average treasury bills rates across benchmark instrument settled at 17.6 per cent on Friday, down 62 basis points week-on-week.
“This week, there will be maturing treasury bills worth N65.032 billion viz: 364-day bills. We however anticipate limited impact of the maturities; hence, we expect some pressure on financial system liquidity and resultant increase in interbank rates,” analysts at Cowry Assets Management Limited stated.
On their part, Afrinvest anticipated that the CBN would continue its aggressive stance by way of OMO and foreign exchange auctions.
“Hence, we expect money market rates to be altered by liquidity dynamics,” they added.
The currency market continued to witness consistent improvements in liquidity and rates convergence this week. The CBN also sustained its interventions at the interbank market via Wholesale and Retail SMIS which continued to boost liquidity and confidence in the economy. Last Monday, the central bank intervened in the foreign exchange market, selling $195 million in total – US$100 million to the wholesale segment, US$50 million to the small and medium enterprises (SMEs) segment and US$45 million allocated to the retail invisibles segment to cater for demand for business/personal travel allowances, school tuition, medical fee etc.
Against this backdrop, naira exchange rate at the official market appreciated three basis points to N305.80/$1 from the preceding week’s close of N305.90/$1.
Meanwhile, at the FMDQ NAFEX segment, a total of US$257 million was traded between Tuesday and Friday; yet, the currency depreciated 0.2 per cent week-on-week at the window to N365.33/$1 from N364.66/US$1 in the prior week.
Likewise, rate at the parallel market depreciated 0.8 per cent to N370/US$1.00 from the preceding Friday’s close of N367.00/US$1.00.
Also, at the FMDQ OTC Futures segment, the value of open contracts closed the week lower at US$2.2 million from the previous week’s close of US$2.8 billion owing to the naira/dollar JULY 2017 contract valued at US$657.6 million which matured during the week, Afrinvest disclosed.
In line with trend, the CBN replaced this maturing contract with the naira/dollar JULY 2018 instrument.
“However, in line with recent trend, we do not expect keen interest in the newly opened contracts. All contracts opened since May 2017 – following upward revision of prices – have received minimal interest.
“The NG/US JUN 2018 and NG/US JUL 2018 have received a total subscription of US$56.9 million and US$18.3 million respectively while the NG/US MAY 2017 has not attracted any subscription since the change in settlement exchange rate to NAFEX from NIFEX.
“We expect the stability in the FX market to be sustained in the short to medium term as the CBN continues its intervention in the spot and forward markets as well as the improvement in the NAFEX window,” they added.
Bond Market Review
According to Afrinvest, the lacklustre trend which had pervaded the activities in the domestic bond market was sustained last week with marginal movements in yields recorded through the week. At the start of the week, average yield across the bond yield curve declined to 16.7% (from 16.8% the preceding Friday) as the price appreciation in the JUL 2017 instrument was offset by impact of sell offs recorded in mid to long tenored bonds. This was reversed on Tuesday as sell offs were recorded across board while average yield climbed to 16.8%. However, sustained buy interest in the JUL 2017 and AUG 2017 instruments dictated performance for the rest of the week as average yield fell four basis points and 12 basis points on Wednesday and Thursday but stayed flat on Friday to eventually close the week at 16.7%, down 15 basis points week-on-week.
In the coming week, they predicted that the performance of the domestic bond market would be largely determined by deliberations from the Monetary Policy Committee which commences today.
Meanwhile, the report showed that the upbeat performance of the Sub-Saharan Africa Eurobonds from the preceding week, persisted last week as yield on all trading instruments declined week-on-week save for the GABON 2027 (+0.2%), SOUTH AFRICA 2019 (+2bps) and SOUTH AFRICA 2041 (+2bps).
“We attribute the sustained interest in SSA Eurobonds to statements from the US Fed which suggests that rate hikes may be implemented at a slower pace during the year. NIGERIA 2023 instrument is the best performing with a YTD gain of 6.7%.
“Across the Nigerian Corporate Eurobonds, performance for the week was mixed albeit more positive than negative. Yield across all trading instruments declined week-on-week save for the DIAMOND 2019 (+9bps), GUARANTY 2018 (+1bp) and UBA 2022 instrument which closed flat.
“The DIAMOND 2019 (+22.2%) and FBN 2021 (+20.1%) instruments remained the best performing year-to-date and we believe this is broadly tied to the attractive pricing of the instruments,” Afrinvest added.
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.”
Egbin Decries N388B NBET Debt, Idle Capacity
Egbin Power Plc, the biggest power station in Nigeria, has said it is owed N388bn by the Nigerian Bulk Electricity Trading Plc for electricity generated and fed into the national grid.
The company disclosed this on Tuesday during an oversight visit by the Senate Committee on Privatisation, led by its Chairman, Senator Theodore Orji, to the power station, located in Ikorodu, Lagos.
The government-owned NBET buys electricity in bulk from generation companies through Power Purchase Agreements and sells it to the distribution companies, which then supply it to the consumers.
The Group Managing Director, Sahara Power Group, Mr. Kola Adesina, told the lawmakers that the total amount owed to Egbin by NBET included money for actual energy wheeled out, interest for late payments and available capacity payments.
Egbin is one of the operating entities of Sahara Power Group, which is an affiliate of Sahara Group. The plant has an installed capacity of 1,320MW consisting of six turbines of 220 megawatts each.
The company said from 2020 till date, the plant had been unable to utilize 175MW of its available capacity due to gas and transmission constraints.
Adesina said, “At the time when we took over this asset, we were generating averagely 400MW of electricity; today, we are averaging about 800MW. At a point in time, we went as high as 1,100MW. Invariably, this is an asset of strategic importance to Nigeria.
“The plant needs to be nurtured and maintained. If you don’t give this plant gas, there won’t be electricity. Gas is not within our control.
“Our availability is limited to the regularity of gas that we receive. The more irregular the gas supply, the less likely there will be electricity.”
He noted that if the power generated at the station was not evacuated by the Transmission Company of Nigeria, it would be useless.
Adesina said, “Unfortunately, as of today, technology has not allowed the power of this size to be stored; so, we can’t keep it anywhere.
“So, invariably, we will have to switch off the plant, and when we switch off the plant, we have to pay our workers irrespective of whether there is gas or transmission.
“Sadly, the plant is aging. So, this plant requires more nurturing and maintenance for it to remain readily available for Nigerians.
“Now, where you have exchange rate move from N157/$1 during acquisition in 2013 to N502-N505/$1 in 2021, and the revenue profile is not in any way commensurate to that significant change, then we have a very serious problem.”
He said at the meeting of the Association of Power Generation Companies on Monday, members raised concern about the debts owed to them.
He added, “All the owners were there, and the concern that was expressed was that this money that is being owed, when are we going to get paid?
“The longer it takes us to be paid, the more detrimental to the health and wellbeing our machines and more importantly, to our staff.”
Adesina lamented that the country’s power generation had been hovering around 4,000MW in recent years.
Oil Rises on U.S. Fuel Drawdowns Despite Surging Coronavirus Cases
Oil prices climbed on Wednesday after industry data showed U.S. crude and product inventories fell more sharply than expected last week, reinforcing expectations that demand will outstrip supply growth even amid a surge in Covid-19 cases.
U.S. West Texas Intermediate (WTI) crude futures rose 48 cents, or 0.7%, to $72.13 a barrel, reversing Tuesday’s 0.4% decline.
Brent crude futures rose 34 cents, or 0.5%, to $74.82 a barrel, after shedding 2 cents on Tuesday in the first decline in six days.
Data from the American Petroleum Institute industry group showed U.S. crude stocks fell by 4.7 million barrels for the week ended July 23, gasoline inventories dropped by 6.2 million barrels and distillate stocks were down 1.9 million barrels, according to two market sources, who spoke on condition of anonymity.
That compared with analysts’ expectations for a 2.9 million fall in crude stocks, following a surprise rise in crude inventories the previous week in what was the first increase since May.
Traders are awaiting data from the U.S. Energy Information Administration (EIA) on Wednesday to confirm the drop in stocks.
“Most energy traders were unfazed by last week’s build, so expectations should be high for the EIA crude oil inventory data to confirm inventories resumed their declining trend,” OANDA analyst Edward Moya said in a research note.
On gasoline stocks, analysts had expected a 900,000 barrel decline drop in the week to July 23.
“The U.S. is still in peak driving season and everyone is trying to make the most of this summer,” Moya said.
Fuel demand expectations are undented by soaring cases of the highly infectious delta variant of the coronavirus in the United States, where the seven-day average for new cases has risen to 57,126. That is about a quarter of the pandemic peak.
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