Economy
Corporate Bond Market to Rebound as FGN Securities Yields Drop
The economic and financial market developments in the last few months in Nigeria point to a possible rebound of activities in the Corporate Bond Market (CBM) very soon.
The CBM had experienced a lull in activities in the last few years because of unfavourable economic and market conditions.
The recent events in Nigeria are changing the unfavourable conditions that have limited the growth of the CBM.
The recent drop in the yields on the Federal Government of Nigeria (FGN) securities, particularly the Nigerian Treasury Bills (NTB), creates an opportunity for the growth of activities in the CBM.
The improvement in the macroeconomic environment in Nigeria and the strategy of the Debt Management Office (DMO) to restructure the debt portfolio of the FGN were primary drivers of the drop in yield.
The need to curb the high inflation rate and maintain foreign exchange stability was responsible for the high NTB yields.
Consequently, there was a lull in activities in the CBM as companies could not compete with the high yields on the 364-day NTB.
Accordingly, most companies opted for Commercial Papers (CP) to raise short-term funds as bridge finance. The average yield on the 364-day NTB between January 2017 and November 2017 stood at 22.16% with the highest yield of 23.41% recorded in 19 April 2017. The high yields crowded out the corporate borrowers from the debt market.
According to data from FMDQ OTC Securities Exchange as at November 1, 2017, only two corporate bonds have so far been issued in 2017.
The two Corporate Bonds are: 17 percent Mixta Real Estate Plc January 2022 Bond and 18.25 percent Dufil September 2022 Bond.
In another development, a review of the latest Purchasing Managers’ Index (PMI) report that the Central Bank of Nigeria (CBN) published for the month of October 2017 shows that economic activities in the manufacturing and non-manufacturing sectors expanded further.
A PMI below the 50 points’ level suggests a decline in business activity while a PMI higher than the 50 points level suggests an expansion. When the PMI is at the 50 points’ level, it means that the degree of business activity in the economy is unchanged.
The Composite Manufacturing Index (CMI) expanded for the seventh consecutive month to stand at 55.0 points.
The Composite Non-Manufacturing Index (CNMI) also expanded for the sixth consecutive month to 55.3 points in October 2017 from 54.9 points in September 2017.
The increase in the PMI is also an indication of expected business expansion in the short-to-medium term which will require more financing.
The consensus forecasts for the Nigerian economy are that the Gross Domestic Product (GDP) will continue to grow. Although the GDP growth rates of the International Monetary Fund (IMF) for Nigeria from 2017 to 2020 are conservative, they are in the positive region.
Both FSDH Research and the Budget Office of the Federation believe the growth rates in the economy between 2017 and 2020 will remain strong, ranging from 2 percent to 7 percent. This means that more business investments will be undertaken.
Our analysis of the data released by the Nigerian Bureau of Statistics (NBS) on the Nigerian GDP (Expenditure and Income Approach) as at Q4, 2016 shows that consumption expenditure of households in Nigeria rose in 2016 compared with 2015.
The total consumption expenditure of households rose by 11.87 percent from N74.41trn in 2015 to N83.25trn in 2016.
FSDH Research expects the households’ consumption expenditure to continue to rise as the outlook for the Nigerian economy remains positive and consumer sentiments improve. The growth in the households’ consumption will also drive investments from firms to meet the growing demand.
FSDH Research believes that the capital requirement for these investments will exceed what companies can generate from internal cash flow. These companies will need external funding and with the expected drop in yields, corporate bond will be an attractive source of raising non-permanent long-term capital to meet the investment needs of firms.
By Dipo Olowookere
The local stock market firmed up by 1.13 per cent on Friday as appetite for Nigerian stocks remained strong.
Investors reacted well to the 2026 budget presentation of President Bola Tinubu to the National Assembly yesterday, especially because of the more realistic crude oil benchmark of $64 per barrel compared with the ambitious $75 per barrel for 2025. This year, prices have been between $60 and $65 per barrel.
Business Post observed profit-taking in the commodity and energy sectors as they respectively shed 0.14 per cent and 0.03 per cent.
But, bargain-hunting in the others sustained the positive run, with the consumer goods index up by 3.82 per cent.
Further, the industrial goods space appreciated by 1.46 per cent, the banking counter improved by 0.08 per cent, and the insurance industry gained 0.04 per cent.
As a result, the All-Share Index (ASI) increased by 1,694.33 points to 152,057.38 points from 150,363.05 points and the market capitalisation chalked up N1.080 trillion to finish at N96.937 trillion compared with Thursday’s closing value of N95.857 trillion.
A total of 34 shares ended on the advancers’ chart, while 24 were on the laggards’ log, representing a positive market breadth index and bullish investor sentiment.
Austin Laz gained 10.00 per cent to close at N2.42, Union Dicon also jumped 10.00 per cent to N6.60, Tantalizers increased by 9.80 per cent to N2.69, Aluminium Extrusion improved by 9.78 per cent to N12.35, and Champion Breweries grew by 9.71 per cent to N16.95.
Conversely, Sovereign Trust Insurance dipped by 7.42 per cent to N3.87, Royal Exchange lost 6.84 per cent to trade at N1.77, Omatek slipped by 6.84 per cent to N1.09, Eunisell depreciated by 5.88 per cent to N80.00, and Eterna dropped 5.63 per cent to close at N28.50.
Yesterday, traders transacted 1.5 billion units worth N21.8 billion in 25,667 deals compared with the 839.8 million units sold for N32.8 billion in 23,211 deals in the preceding session, showing a surge in the trading volume by 76.61 per cent, an uptick in the number of deals by 10.58 per cent, and a shrink in the trading value by 33.54 per cent.
By Adedapo Adesanya
Three stocks stretched the bearish run of the NASD Over-the-Counter (OTC) Securities Exchange by 1.21 per cent on Friday, December 19, with the market capitalisation giving up N26.01 billion to close at N2.121 billion compared with the N2.147 trillion it ended a day earlier, and the NASD Unlisted Security Index (NSI) dropping 43.47 points to 3,546.41 points from 3,589.88 points.
The trio of FrieslandCampina Wamco Nigeria Plc, Central Securities Clearing System (CSCS) Plc, and NASD Plc overpowered the gains printed by four other securities.
FrieslandCampina Wamco Nigeria Plc lost N6.00 to sell at N54.00 per unit versus N60.00 per unit, NASD Plc shrank by N3.50 to N58.50 per share from N55.00 per share, and CSCS Plc depleted by N2.91 to N33.87 per unit from N36.78 per unit.
On the flip side, Air Liquide Plc gained N1.01 to close at N13.00 per share versus N11.99 per share, Golden Capital Plc appreciated by 70 Kobo to N7.68 per unit from N6.98 per unit, Geo-Fluids Plc added 39 Kobo to sell at N5.50 per share versus N5.11 per share, and IPWA Plc rose by 8 Kobo to 85 Kobo per unit from 77 Kobo per unit.
During the trading day, market participants traded 1.9 million securities versus the previous day’s 30.5 million securities showing a decline of 49.3 per cent. The value of trades went down by 64.3 per cent to N80.3 million from N225.1 million, but the number of deals jumped by 32.1 per cent to 37 deals from 28 deals.
Infrastructure Credit Guarantee Company (InfraCredit) Plc finished the session as the most active stock by value on a year-to-date basis with 5.8 billion units valued at N16.4 billion, followed by Okitipupa Plc with 178.9 million units transacted for N9.5 billion, and MRS Oil Plc with 36.1 million units traded for N4.9 billion.
The most active stock by volume on a year-to-date basis was still InfraCredit Plc with 5.8 billion units worth N16.4 billion, trailed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.7 million, and Impresit Bakolori Plc with 536.9 million units traded for N524.9 million.
By Adedapo Adesanya
It was not a good day for the Nigerian Naira at the two major foreign exchange (FX) market on Friday as it suffered a heavy loss against the United States Dollar at the close of transactions.
In the black market segment, the Naira weakened against its American counterpart yesterday by N10 to quote at N1,485/$1, in contrast to the N1,475/$1 it was traded a day earlier, and at the GTBank forex counter, it depreciated by N2 to settle at N1,467/$1 versus Thursday’s closing price of N1,465/$1.
In the Nigerian Autonomous Foreign Exchange Market (NAFEX) window, which is also the official market, the nation’s legal tender crashed against the greenback by N6.65 or 0.46 per cent to close at N1,464.49/$1 compared with the preceding session’s rate of N1,457.84/$1.
In the same vein, the local currency tumbled against the Euro in the spot market by N2.25 to sell for N1,714.63/€1 compared with the previous day’s N1,712.38/€1, but appreciated against the Pound Sterling by 73 Kobo to finish at N1,957.30/£1 compared with the N1,958.03/£1 it was traded in the preceding session.
The market continues to face seasonal pressure even as the Central Bank of Nigeria (CBN) is still conducting FX intervention sales, which have significantly reduced but not remove pressure from the Naira. Also, there seems to be reduced supply from exporters, foreign portfolio investors and non-bank corporate inflows.
President Bola Tinubu on Friday presented the government’s N58.47 trillion budget plan aimed at consolidating economic reforms and boosting growth.
The budget is based on a projected crude oil price of $64.85 a barrel and includes a target oil output of 1.84 million barrels a day. It also projects an exchange rate of N1,400 to the Dollar.
President Tinubu said inflation had plunged to an annual rate of 14.45 per cent in November from 24.23 per cent in March, while foreign reserves had surged to a seven-year high of $47 billion.
Meanwhile, the cryptocurrency market was dominated by the bulls but it continues to face increased pressure after million in liquidations in previous session over accelerating declines, with Dogecoin (DOGE) recovering 4.2 per cent to trade at $0.1309.
Further, Ripple (XRP) appreciated by 3.9 per cent to $1.90, Cardano (ADA) rose by 3.5 per cent to $0.3728, Solana (SOL) jumped by 3.4 per cent to $126.23, Ethereum (ETH) climbed by 2.9 per cent to $2,982.42, Binance Coin (BNB) gained 2.0 per cent to sell for $853.06, Bitcoin (BTC) improved by 1.7 per cent to $88,281.21, and Litecoin (LTC) soared by 1.2 per cent to $76.50, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
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