A Review of the Nigerian Energy Industry

Financial market products & services update

Financial markets07 November 2014, Sweetcrude, Lagos – Local and international financial market products and services update.
NIGERIA: The Central Bank of Nigeria (CBN) released two circulars yesterday. The first outlines changes to its Standing Deposit Facility (SDF) – ‘Guidelines on accessing the CBN Standing Deposit Facility’. Although the SDF rate does not change, a new maximum limit (NGN 7.5bn) is imposed on the amount that individual institutions can place on deposit with the CBN overnight, while still being remunerated. Any balance in excess of NGN 7.5bn will not be remunerated at the SDF rate of 10% (the SDF rate is still set at the Monetary Policy Rate ‘MPR’ – 200bps, in line with the existing corridor around the MPR). The CBN also announced simultaneously new restrictions on the categories of FX demand that are eligible for funds at the official Retail Dutch Auction System (RDAS) auctions. This is expected to push more FX demand on to the interbank FX market, adding further upward pressure to the USD-NGN FX rate. In the immediate aftermath of the release of the circulars, USD-NGN, already bearing the brunt of net sales of equities by foreign portfolio investors, touched a new high of 171.75.

FX: USDNGN tested all time high yesterday hitting 172.00 intraday on a highly volatile day driven by new CBN policies which portend more pressure on the local unit. The equity market continued its sell-off for the 11th consecutive day having its worst day since 2008(down over 4% today) as more off-shore investors continue to exit, with ASI hitting further year to date low at sub 35k points. We had some late CBN presence at market close after nearly breaching the 3% daily trading band (open +/-3%), but this is unlikely to improve short term market sentiments as these new highs are regarded as an inevitable devaluation of the currency.

FIXED INCOME: Nigeria was hit by a tsunami today in the form of two CBN circulars one affecting FX market and the other the fixed income/money market. Massive moves seen yesterday with street looking for all avenues to park cash – all buyers across the curve with no offers on the screen by midday – both bonds and tbill yields on average lower by about 75-100bps. Today will be very critical to see the direction of yields with offshore investors exiting positions. Yesterday’s OMO auction closed before the street got the wind of the circular and stop-rates not reflective of current market conditions. The two maturities on offer printed at 10.80% disc (105 day) and 11.00% discount (175day paper) respectively.

COMMODITIES: Brent headed for a seventh weekly drop as the OPEC predicted it will need to supply less crude amid the U.S. shale boom. Brent for December settlement declined as much as 56 cents to $82.39 on London ICE future Europe.

EU: Mario Draghi is stoking investor bets that he’ll intensify stimulus for the euro area after indicating he has the backing of policy makers to do so. With the ECB president yesterday downplaying dissent within his 24-member Governing Council, new preparations for more-expansive action and a 1 trillion euro ($1.2 trillion) target for boosting the institution’s balance sheet suggest momentum is shifting toward a proposal for broader bond-buying, perhaps in December.

CHINA: China’s bonds rallied and money- market rates fell after the central bank confirmed it added cash to the banking system in the last two months and signalled further monetary stimulus. The People’s Bank of China provided 500 billion yuan ($82 billion) to lenders in September and another 269.5 billion yuan last month via its newly-created Medium-Term Lending Facility, according to a quarterly monetary policy report released late yesterday. The central bank said it will create a “neutral” and “appropriate” monetary environment as economic growth and inflation are on downward trajectories.

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                               10.5833
30 Day                          12.4538
90 Day                          13.2763
180 Day                        14.3206
USD 1 Month               0.1550
USD 2 Months             0.1990
USD 3 Months             0.2316
USD 6 Months             0.3227
USD 12 Months           0.5578

Benchmark yields
Tenor       Maturity       Yield (%)

91d              05-Feb-15        10.15
182d           07-May-15        10.90
364d           03-Sep-15         11.20
2y                16-Aug-16         12.30
3y                27-Apr-17          12.80
5y                29-Jun-19          12.87

Indicative Currency Exchange Rates
Bid       Offer

USDNGN        168.00     172.00
EURUSD         1.2139      1.2690
GBPUSD          1.55584   1.6084
USDJPY           113.60     117.47
USDCHF         0.9277     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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