A Review of the Nigerian Energy Industry

Financial market update

Financial markets07 January 2014, Sweetcrude, Houston – Local and international financial market products and services update.

NIGERIA: President Goodluck Jonathan’s 2014 budget currently before the National Assembly will spend a record amount to service the national debt amid rising budget deficits and higher borrowing costs. Interest expense on the total public debt(domestic and foreign) will rise to N712 billion in 2014, according to the budget proposals, a 20 percent increase from the N591.7 billion spent on debt service in 2013.

BONDS: The lull in the bonds market ended yesterday with a bullish open. Still relatively quiet, we saw buying interest across the curve, most especially in the 2015 bond losing about 50bps to 13.06%. The rest of the curve lost 2-9bps.

BILLS: Bullish sentiment persist in the market yesterday as market players aggressively bid the short dates as they weigh the suppressed overnight funding cost (crippled by the flush of liquidity in the system at over N 700bio as well as more expected inflows this month) against the yields obtainable in the market. We expect this action to see yields in the short dates (below 60 days) trade within the 10.20%-10.70% yield range, barring any special intervention (other than OMO auctions) by the central bank to curb liquidity. The first primary auction of the year is set to hold on Wednesday for the 91day, 182day and 364day bill; see advisory.

MONEY MARKET: OBB and ON rates both at 10.25%.

COMMODITIES: WTI crude traded near the lowest price in more than five weeks amid speculation distillate and gasoline stockpiles increased in the U.S., the world’s biggest oil consumer. WTI for February delivery was at $93.61 a barrel in electronic trading on the New York Mercantile Exchange, up 18 cents.

FX MARKET: Depreciation of the Naira yesterday despite inflow from an oil major. The pair opened to a bullish run till the news of oil inflow forced a USD sell off and kept rates stable. Market however later retraced back up with the level of demand seen far outweighing the inflow and as a result, the local unit lost about 65 points from previous close. CBN offered $350 mio and sold $349.87 mio at today’s RDAS auction. Lowest successful rate is 157.2772 (1% commission included) and 20 banks participated. We have a 2 points depreciation in marginal rate from the previous auction.

CBN RDAS AUCTION: CBN offered $350 million and sold $349.86 million. Marginal rate was N155.72 (excluding 1% commission). 20 banks bid.

US: Janet Yellen, a key force behind the Federal Reserve’s unprecedented and controversial efforts to boost the U.S. economy, was confirmed by the Senate on Monday to lead the central bank just as it begins to unwind that stimulus. When she succeeds Ben Bernanke, whose second four-year term as Fed chairman expires on January 31, Yellen will become the first woman to run the Fed in its 100-year history and just one of a handful of women heading central banks globally. She is currently the Fed’s vice chair.

CHINA: China’s central bank looks set to risk another cash crunch at the end of January, barely a month after the last market squeeze, as policymakers press ahead with a crackdown on shadow financing and other risky bank lending. The People’s Bank of China (PBOC) is attempting a delicate balancing act to keep economic growth on track while avoiding a debt-induced financial crisis. Periodic cash squeezes as banks scramble for fresh funds highlight the policy dilemma the PBOC faces in 2014, as it pushes financial reforms to help rebalance the world’s second biggest economy away from the investment- and exports-led model that powered its rapid rise.

Macro Economic Indicators
Inflation rate (yoy) for Dec. 2014
Monetary Policy Rate current                    12%
FX Reserves (Bn $) as at Jan 2, 2014      43.505

Money Market Highlights

O/N                                          10.5833
7 Day                                        10.8333
30 Day                                     11.0833
60 Day                                     11.3333
90 Day                                     11.7083
USD 1 Month                         0.16250
USD 2 Months                      0.20825
USD 3 Months                      0.23935
USD 6 Months                      0.34450
USD 12 Months                    0.58540

Benchmark Yields
Tenor             Maturity          Yield (%)

91 days             03-Apr-14           11.49
182 days           05-Jun-14           11.57
364 days          04-Dec-14           12.34
2 years              23-Apr-15           12.56
4 years              31-Aug-17           12.45
5 years              30-May-18         12.47

Indicatve Currency Exchange Rates
Bid         Offer

EURUSD       1.3616        1.3666
GBPUSD       1.6395        1.6445
USDJPY        104.45        104.85
USDCHF       0.9063       0.9093
GBPEUR       1.2041        1.2051
USDZAR      10.6356     10.7856
USDNGN      160.92       161.22
JPYNGN       1.5406       1.5906
CHFNGN      177.56       181.56
EURNGN      219.11        223.11
GBPNGN      263.83      267.83
ZARNGN       15.13          17.13

                             Hi              Low           Close        Prev.Close
USD/NGN   159.37/47     158.70/80   159.33/43   158.68/78

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