12 May

Daily Watch – Budget 2017 becomes reality, Moody’s goes sour on FX jitters

  • The National Assembly signed off on a record ₦7.44 trillion ($24.4 billion) budget for 2017 on Thursday, aiming to drag Africa’s biggest economy out of its first downturn in a quarter of a century, lawmakers said. The budget is based on an assumed oil price this year of $44.5 a barrel, while global benchmark Brent crude is currently trading above $50. The plan also entails foreign borrowing of ₦175.9 billion and domestic borrowing of ₦1.488 trillion. “We do hope that this budget of recovery…will go a long way to help Nigeria to come out of the economic recession and bring growth,” Senate President Bukola Saraki told lawmakers. Both chambers of parliament agreed to a bigger budget than the ₦7.298 trillion draft submitted by President Muhammadu Buhari in December. The plan includes ₦1.84 trillion to service loans and projects a deficit of ₦2.21 trillion, implying a deficit equivalent to 2.18 percent of GDP.
  • The FG is considering a proposal to involve the former concessionaire of the Lagos-Ibadan Expressway, Bi-Courtney Highway Services, in the funding of the completion and management of the reconstruction of the road. The Punch says the proposed arrangement would see Bi-Courtney and the new concessionaire, Motorways Assets, jointly form an SPV to source for funds, complete the project and manage the road afterwards. It remains unclear if the deal, reportedly being brokered by the National Assembly, will involve an out of court settlement with Bi-Courtney, which had challenged the revocation of its concession agreement with the government. A closed door meeting held at the office of the President of the Senate on Wednesday evening, where the executive and the legislature finalised talks on the road. The paper quotes a source as saying that the plan was to remove the road from the 2017 budget infrastructure list since the concessionaire would be required to fund the road’s rehabilitation.
  • Nigeria’s dollar liquidity constraints are likely to persist for the foreseeable future, despite the recent improvements in foreign exchange earnings and availability, Moody’s Investors Service has said. According to a report released on Wednesday, which Moody’s said was an “update to the markets” despite recent progress in foreign exchange liquidity, dollar usage in the country is unlikely to return to previous levels. “Oil prices are highly unlikely to return to the $100 per barrel level that would lead to greater foreign exchange inflows,” Moody’s Vice President (Senior Credit Officer and co-author of the report), Aurélien Mali, said. The rating agency noted in a statement it issued on Wednesday announcing the report that Nigeria’s non-oil sectors had struggled to adjust to limited dollar liquidity, given the high import content of inputs and the delays associated with sourcing domestic substitutes.
  • The FG at an auction raised ₦110 billion worth of bonds to mature in 2021, 2027 and 2037, the DMO has said in Abuja. According to DMO’s auction result obtained from its website on Thursday, fewer bonds were sold at the auction than the ₦140 billion anticipated. It also said the DMO sold ₦10 billion of 2021 paper at 16.30 percent, ₦35 billion of 2027 re-opened paper at 16.29 percent and ₦65 billion of re-opened 2037 paper at 16.29 percent. The website stated that subscriptions from investors for the July 2021 bond, stood at ₦17.29 billion, while that of March 2027, which was reopened, stood at ₦52.5 billion. Also, subscriptions for the April 2037 bond, which was also re-opened stood at ₦91.67 billion.
  • A few months after Zenith Bank shareholders rejected a proposed capital raising exercise, the bank has announced another round of capital increase. In a note to the NSE, the bank signified its intention to raise $500 million in the second tranche of its Global Medium Term Note Programme. The term note will be listed on the Irish Stock Exchange and will trade on its regular market; and while the lender intends to raise the money directly, it will utilise a Special Purpose Vehicle if the need arises. The proceeds will be used for general banking purposes and net proceeds from the notes will be paid into the bank’s foreign currency account and may be converted into naira or retained in foreign currency. The bank had cited weak capital markets for the cancellation of the initial bond exercise. Zenith posted a pre-tax profit of ₦156.75 billion for 2016, up from ₦125.62 billion a year earlier.
  • Unilever has declared a dividend of ₦378 million following the approval of the company’s shareholders at the 92nd Annual General Meeting of the Company held in Lagos on Thursday. The dividend declared amidst a challenging operating year and environment translates to a dividend payout of 10 kobo gross per share to the shareholders. In the year ended 2016, the Company increased its revenue by 17.8 percent from ₦59 billion recorded in 2015 to ₦69 billion as Profit After Tax for the year ended 31st December 2016 increased significantly by 157% to ₦3.07 billion from ₦1.19 billion reported for the year ended 31st December 2015.