- Fitch Downgrades Nigeria’s Outlook to Negative
Fitch Ratings has revised the outlook on Nigeria’s long-term foreign and local currency Issuer Default Ratings to negative from stable and affirmed the IDRs at ‘B+.’
The issue ratings on Nigeria’s senior unsecured foreign currency bonds have also been affirmed at ‘B+’, while the ‘Country Ceiling’ was affirmed at ‘B+.
According to a statement by Fitch, the short-term foreign and local currency IDRs have been affirmed at ‘B.’
The revision of the outlook on Nigeria’s long-term IDRs reflected the following key rating drivers.
These include the tight foreign exchange liquidity and low oil production contributed to Nigeria’s first recession since 1994.
The economy contracted through the first three quarters of 2016 and Fitch estimate the Gross Domestic Product growth of -1.5 per cent in 2016 as a whole.
The statement read in part, “We expect a limited economic recovery in 2017, with growth of 1.5 per cent, well below the 2011-15 annual growth average of 4.8 per cent.
It added, “The non-oil economy will continue to be constrained by tight foreign exchange liquidity. Inflationary pressures are high with year-on-year Consumer Price Index inflation increased to 18.5 per cent in December.
“Access to foreign exchange will remain severely restricted until the Central Bank of Nigeria can establish the credibility of the interbank foreign exchange market and bring down the spread between the official rate and the parallel market rates.
“The spot rate for the naira has settled at a range of 305-315 per United States dollar in the official market, while the Bureau de Change rate depreciated to as low as 490 per dollar in November 2016.”
In an effort to work with the CBN to help the parallel market rates converge with the official, the BDC operators had a few weeks ago adopted a reference rate of 400 per dollar.
Fitch, however, noted that the dollar had continued to sell on the black market at rates well above N400.
The global rating agency forecasts that the Federal Government’s cost of debt servicing in 2017 will reach 1.4 per cent of the GDP, up from an average of 1.1 per cent over the previous five years.
According to the agency, the Nigerian banking sector has experienced worsening asset quality as a result of the weakening economy, problems in the oil industry, and exchange rate pressures on borrowers to service their loans.
It added, “The CBN reported that industry non-performing loans grew to 11.7 per cent of gross loans at the end of June 2016, up from 5.3 per cent at the end of December 2015. Tight foreign currency liquidity has also led to some Nigerian banks experiencing difficulty in meeting their trade finance obligations which were either extended or refinanced with international correspondent banks.”
On the current rating on Nigeria, statement said, “Fitch does not currently anticipate developments with a material likelihood of leading to an upgrade.
“However, the following factors could lead to positive rating action: A revival of economic growth supported by the sustained implementation of coherent macroeconomic policies; reduction of the fiscal deficit and the maintenance of a manageable debt burden; increase in foreign exchange reserves to a level that reduces vulnerability to external shocks; successful implementation of economic or structural reforms, for instance raising non-oil revenues, increasing the execution of capital expenditures and passing the Petroleum Industry Bill.”
Finances of International Oil Companies Suffered in the Second Quarter
Finances of IOCs Plunged Amid COVID-19 Pandemic in the Second Quarter
Global leading oil companies suffered substantial losses in the second quarter, according to their various financial statements published in recent weeks.
On Thursday, Royal Dutch Shell posted $18.9 billion loss in the second quarter of 2020, far below the profit of $3.5 billion posted in the same quarter of 2019.
This, the company attributed to the plunge in global oil prices in 2020 due to the COVID-19 pandemic. Shell warned that oil demand remained uncertain, adding that it had cut its exploration plans for this year from about 77 wells to just 22.
This was after the price of Brent crude oil plunged to $15 per barrel during the peak of COVID-19 pandemic while the price of West Texas Intermediate crude oil dipped to -$37 per barrel, the lowest on record.
Also, the company said it has reduced its capital expenditure for the year from the initial $25 billion to $20 billion amid a plunge in revenue and demand for the commodity.
Similarly, ExxonMobil reported a $1.1 billion loss, its biggest decline on record. The oil company also announced it would be lowing spending by 30 percent in 2020 to about $23 billion.
Among the various oil companies posting negative financial statements for the quarter was Chevron Corporation, the company reported $8.3 billion decline in the second quarter of the year. The lowest ever posted by the oil giant in almost three decades.
Chevron, therefore, warned that the havoc caused by COVID-19 pandemic in the energy sector might continue to weigh on earnings.
“While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter of 2020,” Chevron’s Chairman and Chief Executive Officer, Michael Wirth, said.
Oil Halts Bullish Run as US Oil Inventories Rises Than Expected Last Week
Oil Caps Gain as US Oil Inventories Rises Than Expected Last Week
Oil prices halted its bullish run on Wednesday after data from a group known as the American Petroleum Institute (API) revealed that U.S. crude inventories expanded by 7.5 million barrels last week, higher than the expected 2.1 million barrels.
This surged in oil inventories damped the recent increase in oil prices brought about by the renewed hope in COVID-19 vaccines and the 750 billion Euro ($859 billion) stimulus announced by the European Central Bank (ECB) to prop up economies – within the region – affected by the COVID-19 pandemic.
Brent crude oil, against which Nigerian crude oil is priced, rose to $44.86 barrel per day on Tuesday before pulling back to $43.80 on Wednesday during the London trading session.
The US West Texas Intermediate (WTI) crude oil rose as high as $42.48 per barrel on Tuesday before hitting $41.31 a barrel on Wednesday following the release of the data.
“Crude’s rally hit a brick wall after the API report showed a sharp rise in stockpiles and on President Trump’s warning that the coronavirus pandemic in the U.S. is likely to worsen,” said Edward Moya, senior market analyst at OANDA in New York.
“The crude demand outlook just got a double whammy with what could be the biggest rise in stockpiles since late May if confirmed by the EIA report tomorrow and on Trump’s downbeat virus briefing,” Moya said.
The official crude oil inventories data would be released on Wednesday by the US Energy Information Administration (EIA).
Sub Saharan Africa Mergers and Acquisition Hits US$10.3bn in Q1 2020
Sub Saharan Africa M&A Hits US$10.3bn in Q1 2020
South Africa – Refinitiv today released the 2020 first-half investment banking analysis for the Sub-Saharan Africa. According to the report, investment banking fees in Sub-Saharan Africa reached an estimated US$64.5 million during the second quarter of 2020, half the value recorded during the first quarter of 2020 and the lowest quarterly total since Q1 2012.
Around US$196.1 million worth of fees were earned in the region during the first half of 2020, down 27% from last year and a six-year low with fee declines recorded across M&A advisory, debt capital markets underwriting, and syndicated lending. Debt capital markets underwriting fees declined 45% to US$26.2 million, marking the lowest first half year total for bond fees in the region since 2016. Advisory fees earned from completed M&A transactions generated US$43.4 million, down 50% year-on-year to the lowest first half level since 2005, while syndicated lending fees fell 36% to a six-year low of US$71.5 million. Equity capital markets underwriting fees increased 164% year-on-year to US$55.1 million.
Government & Agency fees accounted for 26% of total investment banking fees earned in the region during the first half of 2020, up from 14% during the same period last year. South Africa generated the most fees in the region during the first six months of the year, a total of US$108.4 million accounting for 55%, followed by Nigeria with 13%. JP Morgan earned the most investment banking fees in the region during the first six months of 2020, a total of US$23.1 million or an 11.8% share of the total fee pool.
As for Mergers and Acquisitions (M&A), the value of announced M&A transactions with any Sub-Saharan African involvement reached US$10.3 billion during the first six months of 2020, 44% less than the value recorded during the same period in 2019, and a two-year low. The number of deals declined 18% over the same period. After just US$424.5 million worth of deals were recorded in April, marking the lowest monthly M&A total since October 2005, activity increased for two consecutive months to reach US$3.0 billion in June, a nine-month high.
Deals with a Sub-Saharan African target declined 76% by value to an eighteen-year low of US$3.2 billion, as domestic M&A within the region declined 71% from last year and the combined value of inbound M&A deals reached just US$1.2 billion, the lowest first-half level in more than two decades. The largest deal involving a Sub-Saharan African target was announced at the end of May – Afrimat’s US$644.3 million acquisition of South African mine operator Unicorn Capital Partners.
Deals in the materials sector accounted for 46% of Sub-Saharan African target M&A activity during the first six months of 2020. South Africa was the most targeted nation, followed by Uganda and Nigeria. Outbound M&A totalled US$3.6 billion during the first six months of 2020, 67% more than the value recorded during the same period in 2019, despite a 22% decline in the number of deals. With advisory work on eleven deals with a combined value of U$1.7 billion, JP Morgan holds to the top spot in the financial advisor ranking for deals with any Sub-Saharan African involvement during the first six months of 2020.
In the Equity Capital Market space, Sub-Saharan African equity and equity-related issuance totaled US$1.5 billion during the first half of 2020, 16% more than the value recorded during the same period last year, but lower than every other first half total since 2009. The number of deals recorded declined by 29% to the lowest first half tally since 2009.
Only one initial public offering was recorded during the first six months of the year. 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 the first six months of 2020.
As for 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, taking the value raised during the first six months of 2020 to US$10.7 billion, down 14% from last year and a four-year low. Deutsche Bank took the top spot in the Sub-Saharan African bond underwriter ranking during 1H 2020 with US$1.7 billion of related proceeds, or a 16% market share.
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