STL Trustees Capital Market & Money Market News Recap

While you were away!

 FGN COMMENCES ROAD SHOW FOR N100 BILLION ISLAMIC BOND ISSUANCE

The Federal Government on Thursday, September 7^th, 2017, commenced activities preparatory to the issuance of N100bn non-interest bearing Islamic bond, better known as Sukuk.

The activities began with a national roadshow that started on the said date (Thursday, September 7), with an objective to visit major cities like Kano, Kaduna, Lagos and Port Harcourt to create awareness as well as sensitise target investors to the features and benefits of the Sovereign Sukuk.

The DMO had earlier announced its intention to issue a sovereign sukuk in the domestic market as part of measures to fund the 2017 budget deficit.

Apart from serving as an alternative source of funding for the government, the sukuk is expected to serve as a means of diversifying the investor base for FGN Securities, promote financial inclusion and deepen the domestic capital market.

The DMO explained, “Sukuk are asset-based securities and not debt instruments, and represent ownership in a tangible asset, service, project, business or joint venture. This is why sukuk fits into our debt strategy of borrowing to finance capital projects contained in the budget.

“This ensures that government borrowings are used to finance development projects, which have multiple economic and social benefits for citizens.”

NBS REPORT REVEALS THAT NIGERIA IS OUT OF RECESSION

Official report of the Second quarter 2017 GDP from the National Bureau of Statistics (NBS) has revealed that the Nigerian economy has grown by 0.55%. The real GDP growth of 0.55% in the second quarter of 2017 is the first in about 5 quarters confirming that Nigeria is now firmly out of recession. Revised 2017 Q1 estimates show the economy contracted by 0.91%.

According to NBS, “This growth is 2.04% higher than the rate recorded in the corresponding quarter of 2016 (–1.49%) and higher by 1.46% points from rate recorded in the preceding quarter, (revised to –0.91% from –0.52%). Quarter on quarter, real GDP growth was 3.23%”.

During the quarter, aggregate GDP stood at N26,986,005.20million in nominal terms, compared to N23,547,466.91 million in Q2 2016, resulting in a Nominal GDP growth of 14.60%,” the report added.

The GDP Growth was largely driven by the improvement in the oil sector. Quarter on quarter, the oil sector grew by 7.52% in the second quarter of 2017. The sector also contributed 8.89% of total real GDP in Q2 2017, compared to the first quarter of 2017 where it contributed 8.79%.

An economy is said to be in recession after contracting for two consecutive quarters. The Nigerian economy slipped into recession in early 2016.

CBN INTRODUCES TWO NEW NON- INTEREST BANKING INSTRUMENTS

In a bid to aid liquidity management and deepen the financial system, the Central Bank of Nigeria (CBN) has introduced two new financial instruments known as – Funding for Liquidity Facility (FfLF) and Intra-day Facility (IDF), at its window, for access by non-interest financial institutions (NIFIs) under its regulation.  The central bank stated this in a circular signed and posted to its website on Friday 25^th August 2017.

The central bank listed some of the features of the FfLF to include that it would provide liquidity facility on the overnight basis only and to be terminated on next business day.

Some other features include: “Authorised non-interest financial institutions to provide eligible securities to the CBN as collateral for the facility. The value of the collateral to be maximum of 110 per cent of the value of the facility. For example, if a NIFI wishes to take a FfLF of N10 billion, it would be required to provide eligible security collateral worth N11 billion.

“The CBN shall specify acceptable collaterals from time to time. These shall include, but not limited to the following securities: CBN safe custody account (CSCA) deposit, CBN non-interest note (CNIN), CBN Asset-backed security (CBN-ABS). Sukuk (that has received status from the CBN, warehouse receipts as provided in the CBN Act 2007, and any other collateral designated by the CBN that does not contravene the CBN guidelines for NIFI’s operations.
“The transaction shall be at zero per cent interest rate. At maturity, the transaction unwinds and the CBN receives back its funding and returns the collateral to the NIFI. Failure to provide adequate funding in the account for the unwinding of transaction at maturity, the CBN shall rediscount the pledge securities at par and recover the facility amount and return the net value to the NIFI,” it explained.

On the other hand, it listed some of the features of the IDF to include that the CBN would provide an IDF for settlement, on same day business while authorized NIFI are expected to provide eligible securities as collateral for the facility.

FITCH AFFIRMS NIGERIA’s IDR AT ‘B+’; OUTLOOK NEGATIVE

(Fitch) Fitch Ratings has affirmed Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B+’ with a Negative Outlook. While Fitch acknowledged the strengths of the Nigerian economy including its large and diversified economy and low external debt, the agency listed its concerns about the Nigerian economy. They include a low per capita GDP, an exceptionally narrow fiscal revenue base and a weak business environment. Fitch also highlighted a possible reversal in foreign exchange liquidity and categorized the current economic recovery as weak.

The full list of rating actions is as follows: Long-Term Foreign-Currency IDR affirmed at ‘B+’; Outlook Negative,  Long-Term Local-Currency IDR affirmed at ‘B+’; Outlook Negative,  Short-Term Foreign-Currency IDR affirmed at ‘B’ , Short-Term Local-Currency IDR affirmed at ‘B’,  Country Ceiling affirmed at ‘B+’ and Issue ratings on long-term senior-unsecured foreign-currency bonds affirmed at ‘B+’
The Federal Government will today (Thursday) commence activities preparatory to the issuance of N100bn non-interest bearing Islamic bond, better known as sukuk.

A statement issued by the Debt Management Office in Abuja on Wednesday said a national roadshow to be led by the Director-General of the DMO, Ms. Patience Oniha, would begin today (Thursday).

The N100bn targeted from the bond is one of the sources of funding the 2017 budget.

Sukuk is structured in such a way as to generate returns to investors without infringing Islamic law that prohibits riba or interest.

It represents undivided shares in the ownership of tangible assets relating to particular projects or special investment activity.

The roadshow will visit major cities like Kano, Kaduna, Lagos and Port Harcourt. Also to be involved in the show are financial advisers to the issue, Lotus Capital Financial Services Limited, and FBN Merchant Bank Plc.

According to the DMO, the roadshow is to create awareness about the sovereign Sukuk and sensitise target investors to the features and benefits of the sovereign Sukuk.

The DMO had earlier announced its intention to issue a sovereign sukuk in the domestic market as part of measures to fund the 2017 budget deficit.

Apart from serving as alternative source of funding for the government, the sukuk is expected to serve to diversify the investor base for FGN Securities, promote financial inclusion and deepen the domestic capital market.

Proceeds from the Sukuk issuance, according to the DMO, will be used to finance specific road projects.

The DMO explained, “Sukuk are asset-based securities and not debt instruments, and represent ownership in a tangible asset, service, project, business or joint venture. This is why Sukuk fits into our debt strategy of borrowing to finance capital projects contained in the budget.

“This ensures that government borrowings are used to finance development projects, which have multiple economic and social benefits for citizens.”

 DOLLAR EXCHANGE RATE REPORT 21^st AUGUST TO 8^th SEPTEMBER, 2017

This report is a compilation of the dollar exchange rate at the official and parallel market from the 21^st of August to the 8^th of September, 2017.  The quoted parallel market prices are to serve as a guide to readers, as they represent the average price obtained daily from different black market dealers in the Country.