Daily performance of major economic indicators and highlights from tradings sessions and key statistics such as Treasury Bills, bonds, FX rates, inflation, oil price.
Bond Yields Trend Higher Following Sell off on the 10-Year
***FEC Okays N3.4tn Promissory Note to Offset Local Debts, Salaries***
The FGN Bond market traded on weaker note in today’s session, with yields ticking higher by c.7bps on average, following slight selloff on the 2028s and 2037s with yields traded as high as 14.50% and 14.33% respectively.
The bearish sentiment in the market came mostly on the back of some information on the possibility for a longer tenured bond in the Q2 calendar to be released shortly by the DMO.
We, however, anticipate a slightly lower amount of bond issuance in Q2 19, with an estimated monthly amount of c.N80bn from now to year end, compared to the average monthly amount of c.N125bn in Q1 19.
Yields are expected to remain slightly pressured, as selling interests persist in the market.
The T-bills market traded on a relatively flat note, with market players constrained by the tight system liquidity levels, whilst shifting focus to the CBN’s NTB auction where stop rates cleared higher owing to the signifcant OMO sale in the previous session.
We expect yields to remain elevated, with the possibility for a further OMO intervention by the CBN due to the c.N108bn in OMO maturities expected tomorrow. A further drain in system liquidty could however spark some bearish pressures as banks project for the bi-weekly Retail FX funding on Friday.
Rates in the money market remained relatively unchanged from previous levels, as system liquidity remained subdued at c.N36bn opening the day. The OBB and OVN rates consequently ended the session at 16.71% and 17.50% respectively.
We expect rates to moderate slightly tomorrow, on the back of the expected OMO inflows. This is however barring a significant further OMO sale by the CBN.
At the Interbank, the Naira/USD rate was unchanged at N307.00/$ (spot) and N355.78/$ (SMIS). The NAFEX closing rate in the I&E window however weakened slightly by 0.07% to N360.55/$, as market turnover dropped by 59% to $165m. At the parallel market, the cash rate depreciated by 0.06% to N358.20/$ whilst the transfer rate remained unchanged at N364.00/$.
Interests on the NGERIA Sovereigns remained relatively muted in today’s session, with yields ticking marginally higher by c.1bp on the day.
In the NGERIA Corps, Investors remained well bid on the DIAMBK 19s, UBANL 22s and FIDBAN 22s.
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Disclaimer: Whilst proper and reasonable care has been taken in the preparation and accuracy of the facts and figures presented in this report, no responsibility or liability is accepted by Zedcrest Capital or its employees for any error, omission or opinion expressed herein. This report is not an investment research or a research recommendation and should not be regarded as such. The information provided herein is by no means intended to provide a sufficient basis on which to make an investment decision.
United Capital Plc lists N10 billion fixed rate bonds
United Capital Plc has listed its N10bn, 5 Year 12.5% Senior Unsecured Fixed Rate Series I Bonds.
Today, September 22, 2020, the Nigerian Stock Exchange (NSE) announced the listing of United Capital Plc’s N10 billion, 5 year senior unsecured fixed-rate series bonds due 2025, with a 12.5% interest.
In a statement made available on the NSE website, and signed by Godstime Iwenekhai, Head, Listings Regulation, the medium-term bond will be issued as part of the N30 billion Debt Issuance Programme.
The subscription for the offer will last for twelve (12) days, as the offer will open on the 4th of May, 2020, and close on the 15th of May, 2020.
— The Nigerian Stock Exchange (@nsenigeria) September 22, 2020
Summary of the offer
- Issuer: United Capital Plc
- Offer date: 28th of May, 2020
- Maturity date: 28th of May, 2025.
- Units of sale: 10,000,000
- Price: N1000 per units offered
- Coupon rate: 12.5%
Redemption: Semi-annually, and payable in arrears on 28th November and 28th May of each year, up to and including the Maturity Date.
Note: Senior unsecured bonds are a non-convertible corporate bond, that is not subordinated to any other unsecured indebtedness of the related issuer. Hence, it guarantees bondholders a quick payout in cases of default. While a fixed rate bond is a long-term bond, with an already specified coupon rate (Interest).
United Capital Plc, is a leading African financial and investment banking group, providing bespoke value-added service to its client. The firm was incorporated in Nigeria on March 14, 2004.
Nigerian Treasury Bill falls to 3.05% per annum
The DMO sold N2 billion on the 91-day paper and N8.385 billion on the 182-day.
The latest data from the Treasury bill auctions concluded today revealed that Nigeria’s 364-day tenor dropped to 3.05%. On the other hand, Stop rates printed lower for the 91-day tenor at 1.09% and 182-day tenor, which went for 1.5%.
At the Treasury bill auction, the Debt Management Office sold N2 billion on the 91-day paper, N8.385 billion on the 182-day, and N148.361 billion on the 364-day bills.
Ladi Bello, a treasury dealer at Nigeria’s Tier 1 bank in a phone chat interview with Nairametrics, spoke on the just-concluded auction.
“At the Primary Market Auction conducted by the DMO yesterday, N159bn was rolled-over across the standard maturities on offer with demand skewed towards the new 1-Yr paper.
“Stop rates on the short and mid-tenured maturities closed marginally lower than the preceding auction at 1.09% (↓1bps) and 1.50% (↓5bps) respectively, while the 1-Year paper remained unchanged at 3.05%,” Bello said.
Quick facts: The massive disparity between the subscriptions and the offers recorded suggests investors are willing to earn a negative real return, compared to the higher risk in other assets such as stocks and real estate.
Temitope Busari CFA, a leading investment professional in a note to Nairametrics also spoke on the low-interest rates the Federal Government of Nigeria was borrowing with. She said;
“Yesterday’s Treasury bills stop rates were not far off from expectation and yields will likely continue southwards in the near to medium term.
“Additionally, we might see increased pressure on the short-end of the curve due to the dearth of instruments in the market versus excess liquidity.
“Technically, it’s more beneficial for the Government to borrow at the current levels to enhance our chances of recovery post-pandemic recession. Anecdotally speaking, the current interest rate regime is deemed punitive for savers, considering inflation is currently at 13.22%.”
Basically, the CBN sells T-bills on a bi-weekly basis to investors and it is one of the safest investments available. Interests are paid upfront, with the principal paid in full upon maturity.
Understanding Treasury Bills: Basically, when the government goes to the financial market to raise money, it can do it by issuing two types of debt instruments – treasury bills and government bonds.
Treasury bills are issued when the government needs money for a short period, while bonds are issued when it needs debt for more than, say five years. The issuance of treasury bills is also used as a mechanism to control the circulation of funds in the economy.
Treasury bills have a face value of a certain amount, which is what they are actually worth. However, they are sold for less. For example, a bill may be worth N10,000, but you would buy it for N9,600. Every bill has a specified maturity date, which is when you receive the money back.
The government then pays you the full price of the bill (in this case N10,000), giving you the opportunity to earn N400 from your investment. The amount that you earn is considered as the interest, or your payment for lending your money to the government.
The difference between the value of the bill and the amount you pay for it is called the discount rate and is set as a percentage.
Nigeria’s total public debt stock increased by N2.381 trillion in 3 months
The Debt Management Office revealed that Nigeria’s debt stock increased by N2.381 trillion.
Nigeria’s Total Public Debt Stock stood at N31.009 trillion as of June 30, 2020. The disclosure was contained in a press release by the Debt Management Office (DMO), on September 9, 2020.
The data shows that the Total Public Debt Stock which comprises the Debt Stock of the Federal Government, the 36 State Governments, and the Federal Capital Territory, increased by N2.381 trillion within 3 months when compared with the N28.628 trillion recorded on March 31, 2020.
The N2.381 trillion increase was accounted for by the $3.36 billion Budget Support Loan from the International Monetary Fund (IMF), New Domestic Borrowing to finance the Revised 2020 Appropriation Act including the issuance of the N162.557 billion Sukuk bond, and Promissory Notes issued to settle Claims of Exporters.
Backstory: It will be recalled that the 2020 Appropriation Act had to be revised due to the adverse impact of COVID-19 on the Government’s revenues, and the increased expenditure needs on health and economic stimulus amongst others.
What to expect
According to the Debt Management Office, the Public Debt Stock is expected to grow, as the balance of the New Domestic Borrowing is raised, and expected disbursement is made by the World Bank, African Development Bank, and the Islamic Development Bank, which were arranged to finance the 2020 Budget.
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Additional Promissory Notes are also expected to be issued before the year ends. This and New Borrowings by State Governments are expected to increase the Public Debt Stock.