A Review of the Nigerian Energy Industry

Financial market products & services update

Financial markets 106 November 2014, Sweetcrude, Lagos – Local and international financial market products & services update.
FX: USDNGN closed at 167.25/35 (all time weakest closing level), with no CB intervention seen amidst the continued sell off in the equity market to year to date low after going sub 36k points, while Brent crude price continued its downward trend to $82/bbl levels. The drop in amount offered at today’s RDAS auction to $300 mio from Monday’s $400 mio despite the persistent pressure on the local unit also dampened confidence in CBN’s response to the persistent depreciation. Market gapped from a 166.00/10 open to the mid 166 level few minutes into yesterday’s session and eventually broke through 167 level towards close. The pair last traded these levels February this year and it was momentarily as CBN reacted swiftly, intervening significantly to support the pair. Confidence in similar response this time around is highly dampened by oil price pressure, southward pressure on FX reserves

FIXED INCOME: The rout in crude oil prices caused the bond market to open at wide range (average +16bps on benchmarks) before closing the day flat as we saw street scrambling to cover short positions towards close. Bond auction next week will see NGN65billion on offer split NGN10b, NGN30b and NGN25b respectively on the August 2016s, March 2024s and July 2034s. Tbills secondary market also saw some sell-off and auction results some correction on the 182day bill – the spread between the 182d and 364d now 70bps (-35bps). Stop rates at 9.70%, 10.50% and 11.20% discounts on the 91, 182 and 364 day respectively. Market continues to be very liquid – NGN580billion today with additional NGN143billion hitting the system tomorrow due to maturing OMO bill. We should see CBN try to sterilize some more with an OMO auction. The reality around naira valuations becoming increasingly stark will also put pressure on the fixed income market in the coming days

COMMODITIES: Brent for December settlement was 1 cent lower at $82.94 a barrel on the London-based ICE Futures Europe exchange yesterday

NIGERIA: Nigeria approved borrowing of $945 million from the International Development Association, an arm of the World Bank, for irrigation and drainage projects, Minister of State for Finance Bashir Yuguda said. The borrowing consists of $495 million for irrigation projects in states including Kano, Sokoto and Zamfara; $250 million for urban water projects in Bauchi, Ekiti and Rivers states; and $200 million to improve drainage in Ibadan, Nigeria’s third-biggest city. The loan, repayable in 20 years, comes at an interest rate of 1.25 percent and a service cost of 0.75 percent. Nigeria is seeking to expand agricultural output to reduce dependence on oil exports, which account for more than 70 percent of government revenue.

Agriculture, which employs more than 60 percent of the population, represents about 22 percent of the gross domestic product, according to the National Bureau of Statistics.

EU: The ECB is expected to hold rates at record lows when it meets for the first time since the Bank of Japan boosted its unprecedented stimulus, a move that stoked a rout in the yen and fuelled gains in the nation’s equities. The Bank of England is also seen holding rates today.

CHINA: China said it will step up preparation of a trial program for parallel car imports in Shanghai’s free-trade zone, a move that could lead to lower prices for foreign brands in the world’s biggest vehicle market. The government will adjust rules and speed up work on carrying out a direct-import test program in the zone, the State Council said in a statement dated Oct. 23, which was posted on the central government’s website today. Under the trial, cars would be brought into China without going through a brand’s distribution network, usually leading to lower prices. Cheaper parallel imports would pressure carmakers to cut their prices in the China, according to brokerage Sanford C. Bernstein.

Macro economic Indicators
Inflation rate (YoY) for Sept. 2014                    8.30%
Monetary Policy Rate current                            12.00%
FX Reserves (Bn $) as at October 24 2014     39.002

Money Market Highlights

O/N                             10.5000
30 Day                        12.3320
90 Day                        13.2839
180 Day                      14.4293
USD 1 Month             0.1525
USD 2 Months           0.1975
USD 3 Months           0.2326
USD 6 Months           0.3227
USD 12 Months         0.5418

Benchmark yields
Tenor    Maturity    Yield (%)

91d          22-Jan-15     10.75
182d        23-Apr-15    10.29
364d       03-Sep-15     11.01
2y            16-Aug-16     12.25
3y           27-Apr-17      12.78
5y           29-Jun-19      12.85

Indicative Currency Exchange Rates
Bid        Offer

USDNGN         166.20      167.00
EURUSD         1.2250       1.2752
GBPUSD         1.5726        1.6225
USDJPY          112.60        116.47
USDCHF         0.9177       0.9845
GBPEUR         1.2790       1.2792
USDZAR         10.4834     11.7875
JPYNGN         1.4197        1.4986
CHFNGN        163.88       173.57
EURNGN       207.81       209.17
GBPNGN        261.91       269.30
ZARNGN         15.03        15.96

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