Markets

Record Bond Bonanza Awaits Nigeria as Firms Flock to Raise Debt

Published

6 years ago

May 7, 2018

Record Bond Bonanza Awaits Nigeria as Firms Flock to Raise Debt

Nigeria’s securities regulator is preparing for record bond issuance from companies seeking to benefit from lower interest rates and an economy on the mend.

The bond bonanza comes as Africa’s biggest oil producer recovers from a 2016 contraction, with the International Monetary Fund predicting an expansion of 2.1 percent this year. It will also mark a turnaround from last year when corporate bond sales tumbled to a four-year low as the government ramped up borrowing to fund its spending plans. That flooded the market, drove up borrowing costs, deterred businesses and curbed demand for riskier debt.

Companies could raise 200 billion naira ($554 million) of bonds in 2018, almost double the all-time high set two years ago, the Securities and Exchange Commission said in an emailed response to questions. Five companies have already submitted plans for debt sales totaling 60.5 billion naira, it said.

The funds are being earmarked for infrastructure projects including rail, roads and power, as well as to create capital buffers, the Abuja-based regulator said. Improved liquidity on the Nigerian Stock Exchange and FMDQ OTC Securities Exchange is also encouraging firms to sell more debt securities, it said.

Bank loans “may not be enough” for companies seeking to raise cash to expand, meaning businesses will have to be “substantially financed” in the corporate bond market, said Abubakar Jimoh, the chief executive officer of Lagos-based Coronation Merchant Bank.

The investment bank plans to issue its first tranche of a 100 billion-naira debt program this year, he said in an interview, predicting that at least four of his peers will sell bonds in 2018 to increase their lending capacity.

“Owing to the recent strong liquidity in the market, largely driven by the reduction in domestic borrowing and the consequent downward trend in rates, we expect to see an increase in corporate bond issuance in 2018,” Jimoh said. Coronation plans to raise short-term loans to fund trade deals between companies, while the bonds will help meet customers’ project-finance needs, the CEO said.

Authorities raised dollar bonds late last year and in the first quarter with the aim of reducing naira borrowing, bringing down costs and encouraging companies to access the local debt market. That helped drive yields on local bonds down about 400 basis points since late Augu

“The macro-economy is encouraging now,” creating the right conditions for a return to the bond market, C&I Managing Director Andrew Otike-Odibi said by phone from Lagos. C&I raised 700 million naira at about 16 percent in 2016, which was below 3 billion naira it had targeted because of the high costs.

Sterling Bank Plc has also revived its plans to sell bonds after abandoning a 65 billion-naira bond program in 2016 after being charged 16.5 percent for 7.9 billion naira of debt, which it considered too high. A drop in inflation to a two-year low bodes well for a sale later this year, Chief Executive Officer Abubakar Suleiman said. Inflation fell to 13.3 percent in March, below the benchmark rate of 14 percent.

“We’re still watching the market closely and will only issue when rates moderate to acceptable levels,” he said. “With the recent inflation data, we expect to see improvement in interest rates in the coming months.”

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Samed Olukoya

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Dangote Mega Refinery in Nigeria Seeks Millions of Barrels of US Crude Amid Output Challenges

Published

3 days ago

May 16, 2024

Samed Olukoya

The Dangote Mega Refinery, situated near Lagos, Nigeria, is embarking on an ambitious plan to procure millions of barrels of US crude over the next year.

The refinery, established by Aliko Dangote, Africa’s wealthiest individual, has issued a term tender for the purchase of 2 million barrels a month of West Texas Intermediate Midland crude for a duration of 12 months, commencing in July.

This development revealed through a document obtained by Bloomberg, represents a shift in strategy for the refinery, which has opted for US oil imports due to constraints in the availability and reliability of Nigerian crude.

Elitsa Georgieva, Executive Director at Citac, an energy consultancy specializing in the African downstream sector, emphasized the allure of US crude for Dangote’s refinery.

Georgieva highlighted the challenges associated with sourcing Nigerian crude, including insufficient supply, unreliability, and sometimes unavailability.

In contrast, US WTI offers reliability, availability, and competitive pricing, making it an attractive option for Dangote.

Nigeria’s struggles to meet its OPEC+ quota and sustain its crude production capacity have been ongoing for at least a year.

Despite an estimated production capacity of 2.6 million barrels a day, the country only managed to pump about 1.45 million barrels a day of crude and liquids in April.

Factors contributing to this decline include crude theft, aging oil pipelines, low investment, and divestments by oil majors operating in Nigeria.

To address the challenge of local supply for the Dangote refinery, Nigeria’s upstream regulators have proposed new draft rules compelling oil producers to prioritize selling crude to domestic refineries.

This regulatory move aims to ensure sufficient local supply to support the operations of the 650,000 barrel-a-day Dangote refinery.

Operating at about half capacity presently, the Dangote refinery has capitalized on the opportunity to secure cheaper US oil imports to fulfill up to a third of its feedstock requirements.

Since the beginning of the year, the refinery has been receiving monthly shipments of about 2 million barrels of WTI Midland from the United States.

Crude Oil

Oil Prices Hold Steady as U.S. Demand Signals Strengthening

Published

3 days ago

May 16, 2024

Samed Olukoya

Oil prices maintained a steady stance in the global market as signals of strengthening demand in the United States provided support amidst ongoing geopolitical tensions.

Brent crude oil, against which Nigerian oil is priced, holds at $82.79 per barrel, a marginal increase of 4 cents or 0.05%.

Similarly, U.S. West Texas Intermediate (WTI) crude saw a slight uptick of 4 cents to $78.67 per barrel.

The stability in oil prices came in the wake of favorable data indicating a potential surge in demand from the U.S. market.

An analysis by MUFG analysts Ehsan Khoman and Soojin Kim pointed to a broader risk-on sentiment spurred by signs of receding inflationary pressures in the U.S., suggesting the possibility of a more accommodative monetary policy by the Federal Reserve.

This prospect could alleviate the strength of the dollar and render oil more affordable for holders of other currencies, consequently bolstering demand.

Despite a brief dip on Wednesday, when Brent crude touched an intra-day low of $81.05 per barrel, the commodity rebounded, indicating underlying market resilience.

This bounce-back was attributed to a notable decline in U.S. crude oil inventories, gasoline, and distillates.

The Energy Information Administration (EIA) reported a reduction of 2.5 million barrels in crude inventories to 457 million barrels for the week ending May 10, surpassing analysts’ consensus forecast of 543,000 barrels.

John Evans, an analyst at PVM, underscored the significance of increased refinery activity, which contributed to the decline in inventories and hinted at heightened demand.

This development sparked a turnaround in price dynamics, with earlier losses being nullified by a surge in buying activity that wiped out all declines.

Moreover, U.S. consumer price data for April revealed a less-than-expected increase, aligning with market expectations of a potential interest rate cut by the Federal Reserve in September.

The prospect of monetary easing further buoyed market sentiment, contributing to the stability of oil prices.

However, amidst these market dynamics, geopolitical tensions persisted in the Middle East, particularly between Israel and Palestinian factions. Israeli military operations in Gaza remained ongoing, with ceasefire negotiations reaching a stalemate mediated by Qatar and Egypt.

The situation underscored the potential for geopolitical flare-ups to impact oil market sentiment.

Crude Oil

Shell’s Bonga Field Hits Record High Production of 138,000 Barrels per Day in 2023

Published

3 days ago

May 16, 2024

Samed Olukoya

Shell Nigeria Exploration and Production Company Limited (SNEPCo) has achieved a significant milestone as its Bonga field, Nigeria’s first deep-water development, hit a record high production of 138,000 barrels per day in 2023.

This represents a substantial increase when compared to 101,000 barrels per day produced in the previous year.

The improvement in production is attributed to various factors, including the drilling of new wells, reservoir optimization, enhanced facility management, and overall asset management strategies.

Elohor Aiboni, Managing Director of SNEPCo, expressed pride in Bonga’s performance, stating that the increased production underscores the commitment of the company’s staff and its continuous efforts to enhance production processes and maintenance.

Aiboni also acknowledged the support of the Nigerian National Petroleum Company Limited and SNEPCo’s co-venture partners, including TotalEnergies Nigeria Limited, Nigerian Agip Exploration, and Esso Exploration and Production Nigeria Limited.

The Bonga field, which commenced production in November 2005, operates through the Bonga Floating Production Storage and Offloading (FPSO) vessel, with a capacity of 225,000 barrels per day.

Located 120 kilometers offshore, the FPSO has been a key contributor to Nigeria’s oil production since its inception.

Last year, the Bonga FPSO reached a significant milestone by exporting its 1-billionth barrel of oil, further cementing its position as a vital asset in Nigeria’s oil and gas sector.