21 Oct

Daily Watch – Market share hungry NNPC slashes oil grade prices, FG mulls Sukuk bond issue

  • The Federal Government is in talks with the investment arm of Saudi Arabia-based Islamic Development Bank about issuing the country’s first Sukuk as the government seeks to diversify its sources of funding. “We are engaged in discussions with Nigeria,” the Chief Executive Officer of the Islamic Corporation for the Development of the Private Sector, Khaled al-Aboodi, said in an interview in Abidjan. “Once they feel this is a good option to go, we’ll be very happy to accompany them on this process,” he continued. The Director-General, Debt Management Office, Abraham Nwankwo, had said in January that selling Sukuk would help in attracting capital from Gulf states and Islamic markets. The government is planning to issue a $1 billion Eurobond this year, which will be its first of such deal since 2013. Osun State sold the only Sukuk from the country in 2013, raising N10 billion ($32m) due in 2020 and pays the equivalent of 14.75 percent interest. The CBN had issued new Sukuk guidelines earlier this month for state governments looking to explore the funding option.
  • The NNPC, Thursday, slashed the official selling price of Nigeria’s crude oil grades as parts of a strategy to make Nigeria crude oil attractive to buyers and to help it regain its share of the global crude oil market. According to a report by Bloomberg Energy, the NNPC cut the price of every type of crude it sells in an effort to regain its share of the global oil market at a time when there is a huge glut of cargoes. The report disclosed that the NNPC lowered by at least $1 a barrel, its official selling prices (OSP), for 20 out of 26 oil grades monitored by Bloomberg, according to pricing lists. It noted that Qua Iboe, Nigeria’s largest crude export, was reduced by the most since 2014, its selling price for November down to a 17 cent premium to the benchmark Dated Brent, according to the price list, from $1.07, while the price of Bonny Light is now at a seven cent premium and Forcados is now at a 41 cent discount to Dated Brent. Brent crude futures, the report said, slumped as much as 2.7 percent to $51.27 a barrel, the largest intraday decline since September 27.
  • The CBN has unveiled plans to fund the 60-day forward sales and request from the agricultural, aviation, machinery and raw materials sectors, thus guaranteeing letters of credit (LCs) for importers to ship in required goods within the next few months. In a statement, the regulator confirmed that the CBN would fund the requests from the various sectors in the secondary market. Bank spokesman Isaac Okorafor explained that importers in the agricultural sector would get the lion share of allocations, about 62 percent of their requests, while importers of machinery would receive 53 percent of their requests. Other sectors to receive allotments are the airlines, which will have 32 percent of their request settled, as well as the importers of raw materials. The 60-day forward sales, which would amount to over $300 million would further ease pressure on the Naira and improve market liquidity. In a related development, Nigeria’s overnight interbank rate crashed on Wednesday to around 20 percent from 150 percent after the central bank sold less hard currency than expected at a special auction, traders said. The interbank rate fell after the auction as banks now had more surplus liquidity from funds not used to buy hard currency, dealers said. Banks had been required to fund their accounts to participate in the auction, causing the cost of borrowing to soar. Traders said the volume of the forex auction was not immediately available, adding that dollars were sold at a range of N310-350 per dollar by the CBN.
  • The FMDQ OTC Securities Exchange has introduced short-term bonds to the Nigerian fixed income market. The Exchange, on Wednesday, said this was achieved through engagement and the subsequent approval of the action by the SEC. The STBs are short-term debt instruments issued by corporate entities for tenors of between one year and three years. In addition to bridging the funding gap between short- and medium- to long-term debt instruments, the STBs are designed to serve the liquidity needs of the medium to large creditworthy corporates and commercial entities by providing an alternative/competitive source of financing to bank loans.
  • Access Bank Plc has raised $300 million via a Eurobond from the international bond market. The bank recently accessed the international market to raise the bond, with a maturity date of October 2021 and at a coupon of 10.5 percent, making Access the first Nigerian bank to raise a bond from the international market this year despite the country’s macroeconomic headwinds. Access Bank currently has two series of Eurobonds in issue – the $350 million maturing in July 2017, at a coupon of 7.25 percent, and the $400 million (9.25%) maturing in June 2021 – as part of a US$1 billion global medium-term note programme. Commenting on the development, Herbert Wigwe, Group Managing Director/CEO said: “The bond will be for working capital, for lending to investment-grade names, including Nigerian companies seeking to expand their exports.”
  • Kaduna has earmarked N3.12 billion for various electricity projects in the state in 2017. The projects would be coordinated by the State Power Supply Company. The amount, contained in the 2017 budget document, indicated that the administration would utilise N1.2 billion in completing the Kudendan Power Project. The gas plant project, with a capacity of 215MW, is to provide power to industrial areas in Kaduna and is scheduled for completion by August 2017. Also, N200 million is provided for the completion of the 30MW Gurara Hydro Power Plant. The government indicated that it would secure a N1.5 billion loan from the India Export-Import Bank to finance the power project. According to the breakdown, more than N2.25 billion of the finances would be provided through Concessional Multilateral Loans and Credit.