Market Awaits N151bn Maturing Treasury Bills

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MARKET INDICATOR

By Obinna Chima

Investors in the money market are currently expecting a net treasury bills maturity of N150.6 billion expected to hit the market this Thursday.

The impact of this maturing instrument on the liquidity levels of the market is however expected to be off-set by a rollover of the same net amount during the week.

In the treasury bills market, average rate opened the week at 7.9 per cent (from 8.6 per cent the preceding Friday), dropping to 7.8 per cent on Tuesday on the back of increased buying interest. But average treasury bills rate eventually closed the week at 8.2 per cent down, 0.4 per cent week-on-week.

However, analysts anticipate that money market rates would trend northwards as they expect the Central Bank of Nigeria (CBN) to carry out more open market operations (OMO) mop-ups.

Amid expectations of inflows to hit the money market last week, money market rates started the week (Monday) lower than preceding Friday’s closing rates.

Specifically, the open buy back (OBB) and overnight rates dropped one per cent and 0.9 per cent to settle at 3.5 per cent and 4.1 per cent at the end of last Monday’s trading session.  OBB and overnight tenors settled at 3.1 per cent and 3.7 per cent last Friday, down 1.4 per cent and 1.3 per cent respectively week-on-week.

Forex Market

Amidst devaluation uncertainties and shortages of forex, most foreign investors remained cautious about entering the Nigerian market whilst currency and reinvestment risks linger, a report by Afrinvest West Africa stated.

The figures on the Nigerian Stock Exchange’s (NSE) Domestic and Foreign Portfolio report released in March had shown that foreign portfolio investors’ (FPI) outflows of N58.2 billion in January and February surpassed inflows of N27.95 billion by 108.2 per cent.

“The reservations foreign investors hold at the moment is likely to persist until there is a clear market friendly shift in FX policy direction by the monetary regulatory authority,” Afrinvest stated.

The foreign exchange market was relatively stable at all segments throughout April. The CBN’s official exchange rate remained at N197/$1 whilst naira traded between N320-N323/$1 at the Bureau De Change and N321-N324/$1 at the parallel market during the month.

Nonetheless, last week the naira traded at the CBN and Interbank at N197/$1 and N199.10/$1 respectively. At the BDC segment of the market, the naira traded at N320/$1 throughout the week whilst naira traded at N322/$1 all through at the parallel market save for Wednesday and Thursday when it firmed up to N321.00/US$1.00.

But the central bank remained unable to adequately meet dollar demands in April. Current Gross foreign reserves level closed at $27.14 billion from $27.85 billion at the start of the month.

“We expect that the relative calm in the forex market will spill over into the month of May. However, we believe that there might be a shift in the stance of the central bank on forex policies at the next monetary policy committee (MPC) meeting scheduled for the 23rd and 24th of May,” the report added.

CBN Governor, Mr. Godwin Ifeanyi Emefiele recently described the current scarcity of foreign exchange confronting the country as good riddance, saying local production of various essential goods are now being given top priority. Emefiele said this during a tour of the farmlands cultivated under the Anchor Borrowers’ Programme in Kebbi State. He stated that the commitment of stakeholders and the expected output from Kebbi State alone had proved critics of the central bank’s policy measures wrong. Emefiele, who was full of praise for the farmers and the Kebbi State Government for their determination and commitment, said with the level of success attained under the pilot project in the state, in addition to what he saw at the Sunti Golden Sugar Estate in Niger State recently, it was becoming more of a reality that the country can produce enough food to feed itself and even export in no distant future.

The CBN governor held the view that with agriculture being the bedrock of genuine economic growth of any nation, Nigeria could not be an exception.

“As such, Nigeria with large expanse of arable land ought not to be spending huge amounts of money importing food items at the expense of other competing needs,” he added.

Bond Market

Amidst the volatility in the financial market, analysis showed that the domestic bond market was equally being pressured by investor sentiments. Analysis of the bonds market performance in sampled emerging markets shows that three of Nigeria’s local bonds were the worst performing year-to-date. This was not unconnected with the challenges the economy is currently facing, coupled with monetary policy volatility that has weakened investor sentiments.

Last week, activities in the bonds market were mixed as average yields across benchmark bonds opened the week at 12.4 per cent (from 12.6 per cent on last Friday), with increased buying activity observed on the 20-year benchmark bond (FGN MAR 2036).

 Average yield rose by 0.2 per cent to settle at 12.6 per cent by Midweek amid selling activities across board. Whilst the bonds market was generally quiet on Thursday, average yield across benchmark bonds rose one basis point, eventually settling at 12.7 per cent on Friday, which was higher by 0.1 per cent week-on-week.

Nigeria, Others Record Huge Levels of Private Equity Exits

African private equity firms cashed in on investments last year at the highest rate in almost a decade, with South Africa, Egypt, Nigeria and Kenya accounting for two-thirds of these exits.

Equity firms sold investments in 44 companies in 2015, compared to 39 companies in the two previous year, according to a report by Ernst & Young (EY) and the African Private Equity and Venture Capital Association (AVCA).

According to Reuters, the number of successful private equity exits influences a company’s ability to attract investors and raise funds. Private equity firms in Africa still continue to outperform public markets, the report showed.

The financial services sector capped the highest exits at 24 per cent between 2014 and 2015, while the oil and gas sector saw no exits during the same period, the report showed.

One of those institutions was Access Bank, which obtained approval to raise up to N100 billion from either private or public funders.

“The biggest current challenges noted by PE firms included an increasingly tough macro-economic environment, particularly currency fluctuations, valuations trending upwards, and an intermediary landscape that is underdeveloped in a number of countries,” EY said in a statement.

Returns per region varied, with East Africa performing the best, closely followed by Southern Africa (excluding South Africa) and North Africa, the report noted.

Geographic expansion, cost reduction, mergers & acquisitions, and new management were some of the factors contributing to the growth.

AVCA analysts were still cautious about the growth of the market, saying that the year ahead will still be challenging.

“We saw a development in exit routes across Africa in 2013. Historically, sales to corporates have been the principal exit route. Indeed, trade sales accounted for 44 per cent of African exits between 2007 and 2013. However, last year they made up less than one-third of PE exits, the lowest proportion recorded. Exits via initial public offerings remained in line with historical levels, at four per cent but sales to other PE houses saw a sharp increase in share.

“PE-to-PE sales rose from 14 per cent in 2012 to 22 per cent in 2013, the largest proportion recorded by some margin. Last year’s percentage is significantly higher than that recorded over the long term — 14 per cent from 2007 to 2013. An increasing prevalence of secondary buyouts is indicative of a maturing market, and Africa seems to be no exception.

“While some of last year’s increase in proportion is the result of fewer trade sales overall, it seems highly likely that as more Africa-focused funds emerge and more global players look to the region for investments, so secondary buyouts will increase as a share of exits over the medium term,” it added.

In addition, it showed that there have been significant shift away from stock sale on public markets as an exit route. In 2013, there were no PE realisations using this route, compared with a long-run average of six per cent of exits.