Business News
Senate tells FG to sell 40% stakes in DisCos to foreign investors
The Nigerian Senate has advised the Federal Government (FG) of Nigeria to sanction the sale of its 40% stake in Electricity Distribution Companies (DisCos) to foreign investors.
The Nigerian Senate has advised the Federal Government of Nigeria (FGN) to sanction the sale of its 40% stake in Electricity Distribution Companies (DisCos) to foreign investors.
The Senate President, Ahmed Lawan revealed the Senate’s call in Abuja while receiving the Management Team of the Transmission Company of Nigeria (TCN) led by the Managing Director, Usman Mohammed.
The details: According to the Senate President, as stipulated in the Power Sector Privatisation Act 2005, the private investors should be allowed to invest and take ownership of the sector to put an end to the challenges being faced.
“The 40% holding of the Federal Government as stipulated in the Power Privatisation Act 2005 may also be more beneficial to the nation if it is sold to foreign investors with technical know-how.”
Speaking further, the Senate President stated that it is not in the interest of the government to keep disbursing bailout funds to DisCos without commensurate improvement in the power supply.
[READ ALSO:Pension Fund Assets hits N9.3 trillion as investment in FGN securities drops]
Meanwhile, Lawan went on to assure the TCN of the Senate’s support on its proposed recapitalization of DisCos and the Transmission Rehabilitation and Expansion Programme (TREP).
Earlier development: In 2013, the Federal Government embarked on partial privatisation of the power sector. After the privatisation of the 11 DisCos of the Nigeria Electricity Supply Industry (NESI), the Federal Government retained 40% of the equity in the DisCos and divested 60% to private investors.
- Six years down the line, Nigeria’s power sector is still facing several challenges.
- To tackle these challenges, the FG recently announced a move to raise $4.7 billion to recapitalise the Electricity Distribution Companies (DisCos) in partnership with some private investors, to upgrade power distribution equipment in the country.
- According to the report, FG is expected to inject $1.7 billion into the DisCos, while the private investors will pay up the balance that is proportional to their 60% equity in the companies.
Basically, DisCos collect funds from power consumers on behalf of other operators in the sector, but a recent report shows that DisCos’ debt to TCN had grown to about N270 billion.
Following the planned recapitalization process, the Managing Director of TCN, Dr Usman Gur Mohammed, disclosed that electricity tariffs might skyrocket. According to him, the private sector investors would not raise loans from commercial banks. As a result, they would need to earn their returns on investment by hiking tariffs.
Meanwhile, the Senate President has urged that the recapitalization and expansion programmes should be carried out with a holistic picture of how power supply challenges would be resolved once and for all.
Business News
IMF advises banks to suspend dividend payment
However, halting dividend payments may not go down well for many retail and institutional investors, who rely on bank dividends for regular income.
In an article published on its website, International Monetary Fund (IMF) Managing Director, Kristalina Georgieva, advised banks to halt dividend payment for now. According to her, with the expectation of a deep recession in 2020 and partial recovery in 2021, banks’ resilience will be tested. Therefore, having in place strong capital and liquidity positions to support fresh credit will be essential.
According to the article, one of the steps needed to reinforce bank buffers is retaining earnings from ongoing operations which are not insignificant.
IMF staff calculate that the 30 global systemically important banks distributed about US$250bn in dividends and share buybacks last year.
READ MORE: State Governments: Another cycle of non-payment of salaries to begin soon
In a circular dated January 31, 2018, the Central Bank of Nigeria (CBN) stipulated new conditions for eligibility of Nigerian banks to pay dividend and the quantum of dividend to be paid out by banks who are eligible. Prior to the release of the circular, dividend payout policy for Nigerian banks had been spelt out in Section 16(1) of BOFIA 2004 (as amended) and Prudential Guidelines for DMBs of 2010. The circular provided guidelines and restrictions around divdidend payout for banks based on NPL ratio, CRR levels, and Capital Adequacy Ratio (CAR).
However, there were no regulatory restriction on dividend payout for banks that meet the minimum capital adequacy ratio, have a CRR of “low” or “moderate” and an NPL ratio of not more than 5%. However, it is expected that the Board of such institutions will recommend payouts based on effective risk assessment and economic realities. Indeed, current economic realities demand caution.
Current economic realities mean that banks face asset quality threats, further devaluation threat which may impact capital in some cases, and lower profits which in turn affects the quantum of capital retained. Ideally, these should reflect in NPL ratio and CAR ratio and should immediately restrict banks’ ability to pay dividend. However, there is usually a time lag before these ratios begin to reflect the new economic realities. Therefore, IMF’s advise may come in handy for many banks.
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That said, halting dividend payments may not go down well for many retail and institutional investors, who rely on bank dividends for regular income. Banks like Zenith and Guaranty Trust have a good history of consistent dividend payment with attractive yields which is a major attraction for many shareholders.
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Economy & Politics
CBN reduces MPR to 12.50%, holds other metrics
Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 13.50% to 12.50% and retains CRR at 27.5%, Liquidity ratio at 30%.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 13.50% to 12.50%.
Governor, CBN, Godwin Emefiele, disclosed this while reading the communique at the end of the MPC meeting on Thursday in Abuja. Meanwhile, other parameters such as the Cash Reserve Ratio (CRR) remained at 27.5%, Liquidity ratio at 30%.
READ ALSO: Bankers decry rise in public debt, weak economy
Highlights of the Committee’s decision
- MPC cuts MPR by 100 basis points to 12.50%
- CRR stood at 27.5%
- The Liquidity Ratio was also kept at 30%
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CBN MPC cuts policy rate by 100 basis points to 12.5 %, maintains other parameters constant.
— Central Bank of Nigeria (@cenbank) May 28, 2020
READ ALSO: Nigeria’s total debt to hit N33 trillion – Senate
According to Emefiele, the decision of the MPC to reduce the Monetary Policy Rate was informed by the impact of the Covid-19 pandemic on the economy, increased inflationary pressure, restrictions in international trade and more.
He highlighted the decline in the nation’s GDP as well as the decline in the manufacturing and non-manufacturing purchasing index which were attributable to slower growth in production, rate of unemployment, amongst others.
READ MORE: AfDB’s Akinwumi Adesina hits back, denies allegations against him
On reopening of the economy, Emefiele emphasised the need for Government to work towards a gradual reopening in line with recommendations of the Presidential Task Force (PTF) and advice from medical experts, insisting that efforts must be directed at saving not only lives but also livelihoods. He said,
“This is to enable the resumption of economic activities necessary to stimulate growth, accelerate the pace of recovery and restore livelihoods, particularly the vulnerable in our society.
“With respect to output, the Committee urged the Federal Government to continue exploring options of partnership with the private sector to fund investment in infrastructure. This would aid employment generation, support production and boost output growth.”
Economy & Politics
Buhari seeks approval from green chamber to borrow fresh $5.5billion
FG also seek approval for the revised 2020-2022 mid-term expenditure framework (MTEF) which became necessary as a result of the crash in crude oil prices and the cut in the production output.
President Muhammadu Buhari is seeking the approval of the House of Representatives to borrow fund to finance capital projects at the federal and state (to support state governors) levels in the 2020 budget.
This request was disclosed via the official twitter handle of the House of Representatives.
The president’s letter, which indicated that the fund would be sourced locally and internationally, was read on the floor of the House of Representatives by the Speaker, Femi Gbajabiamila, during plenary on Thursday, May 28, 2020.
READ ALSO: 4 key sectors CBN plans to pump money into
In the letter to the lower chamber, Buhari, is also seeking the approval for the revised 2020-2022 mid-term expenditure framework (MTEF) which became necessary as a result of the crash in crude oil prices and the cut in the production output.
Although the tweet did not contain the total amount of loan that is being requested, reports suggests that the President is seeking approval to borrow the sum of $5.513 billion from external sources to finance 2020 budget deficit and support state governments to meet challenges caused by the coronavirus pandemic.
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CBN MPC cuts policy rate by 100 basis points to 12.5 %, maintains other parameters constant.
— Central Bank of Nigeria (@cenbank) May 28, 2020
President @Mbuhari is also seeking the House approval to borrow locally & internationally to finance capital projects as well as finance projects to support state governors in the 2020 budget
The letter was referred to the House Committee on loans & debt management. #HousePlenary— House of Reps NGR (@HouseNGR) May 28, 2020
Details shortly…
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