A Review of the Nigerian Energy Industry

Financial market products & services update

Financial markets 102 June 2014, Sweetcrude, Houston, Tx – Local and international financial market products and services update.
NIGERIA: Grants, tax holidays to corporates by the federal government and failure by many Nigerians to pay their taxes are costing the government about N1 trillion in valuable tax revenue annually, reports have revealed. As a result, Nigeria has consistently ranked along with countries with the lowest tax to gross domestic product (GDP) in the world. Analysis of numbers released by the Federal Inland Revenue Service (FIRS) showed that gross collections totaled just 12.1 per cent of GDP in 2013 (8.5 per cent for oil and 3.6 per cent for non-oil). In Brazil, the ratio is 32 per cent, and for Organisation for Economic Co-operation and Development (OECD) countries, the average is closer to 35 per cent.

FIXED INCOME: OMO auction continues to be the key driver of secondary market activities as the secondary market came alive after the OMO auction results were announced with the stop rate retained at 10.80% discount and only 26.79bn sold even though 50bn was on offer. The markets closed on a strong tone on the back of the results. Africa’s largest economy to sell 22.97bn naira of 91-day bills, 30bn naira of 182 day securities and 85bn of 364-day debt.

COMMODITIES: West Texas Intermediate crude rebounded from its lowest close in more than a week after manufacturing expanded at the fastest pace this year in China, the world’s second-biggest oil consumer. WTI for July delivery increased as much as 64 cents to $103.35 a barrel in electronic trading on the New York Mercantile Exchange and was at $103.14.

FX: The pressure on the pair was still consistent as it depreciated 25points everyday of last week. The oil flow we saw last week ($43 million) fell significantly short of the amount ($400 million) we expected during the week. This in many ways accounted for the drop in rates. However, market traded cautiously as there’s still expectation next week of the oil flows. The state owned Oil Company is also expected to sell funds into the market, with an estimated amount of $400-$500mio. Going into the new week, we expect market players to start opening short positions ahead of the oil flows.

US: The U.S. Federal Reserve is expected to complete the tapering of its stimulus plan by the end of this year, Chicago Fed President Charles Evans said at a conference in Istanbul on Monday. Fed policymakers began in April to lay groundwork for an eventual retreat from their extraordinarily easy monetary policy with a discussion of the tools they could employ to accomplish the task, but no final decisions were taken, according to minutes of the session released last month.

CHINA: China continues to show signs of an economic revival as its factory activity expanded at the fastest pace in five months in May, raising some hopes across the region that Beijing’s targeted measures to bolster growth are having an impact. China’s official Purchasing Managers’ Index, which is geared towards bigger, state-owned firms, rose to 50.8 in May, from April’s 50.4, the National Bureau of Statistics said on Sunday, beating market expectations of 50.6.

Macro Economic Indicators
Inflation rate (yoy) for Apr. 2014            7.9%
Monetary Policy Rate current                  12%
FX Reserves (Bn $) as at May. 29            37.147

Money Market Highlights

O/N                           10.9500
30 Day                      12.4400
90 Day                      13.5184
180 Day                    14.4311
USD 1 Month           0.1510
USD 2 Months         0.1908
USD 3 Months         0.2274
USD 6 Months         0.3219
USD 12 Months       0.5344

Benchmark Yields
Tenor        Maturity       Yield

91d              21-Aug-14        10.09
182d           20-Nov-14       10.91
364d           07-May-15       11.21
2y                16-Aug-16        12.01
4y                31-Aug-17        12.08
5y                29-Jun-19        12.31

Indicative Currency Exchange Rates
Bid         Offer

EURUSD            1.3552      1.3654
GBPUSD            1.6692      1.6795
USDJPY             102.04     102.07
USDCHF            0.8929     0.9031
GBPEUR            1.2258      1.2359
USDZAR            10.4950   10.7028
USDNGN            162.37     163.07
JPYNGN            1.5707       1.7207
CHFNGN          187.26      192.86
EURNGN          227.56      232.76
GBPNGN          273.06      278.26

                              Hi           Low             Close    Prev.Close
USD/NGN  162.75/85  162.60/70   162.67/77   162.71/81

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