The Nation Newspaper

Tag: FDC

  • FIRST COMMUNITY SENIOR GRAMMAR SCHOOL WINS FDC DANCE COMPETITION

    FIRST Community Senior Grammar School has won the maiden edition of the Forward Dance Championship (FDC) which held at Teslim Balogun Sports Hall, Lagos recently, beating other schools like Onitolo Senior Secondary School, Aguda Senior Grammar School, Surulere Senior Secondary School, Gbaja Boys High School among others.

    Hosted by the Lagos State Ministry of Tourism, Arts and Culture, and supported by the Ministry of Education, the Forward Dance championship had government secondary schools across Lagos state in participation.

    According to the organiser, Mr. Bimbo Obafunwa, who is also the founder of  The Dance Deal Training Foundation (TDDTF), ‘it is basically to spread the gospel of dance. We’ve realised that dance education can be very helpful to the central development of the average young individual around the world. So in our small circle for the last seven years I have been training professional dancers to embrace the art of dance and take it to a professional level.’

    On why the competition was taken to secondary schools and not universities, Obafunwa said; ‘I am a victim of what you see here today. I studied micro-biology in the university and by the time I got to the end I discovered that it was not something I wanted to do but I have always loved art but I didn’t discover in time that’s why we decided to start the competition at a level where students can begin to make up their minds on what they want to do.’

    The winning school got N300,000 which the organiser will be used to build a standard dance studio in their school that can also be used for all performing arts programmes in the school, while the first and second runners up went away with  N200,000 and N100,000 respectively

    The panel of judges include traditional dance veteran, Sir Victor Ofulu, Latin choreographer, Lilian Yeri, dance director for Project Fame, Loveth Otegbola, and head of spirit of David Segun Lawal.

  • Nigerian equities will remain bearish, say analysts

    Nigerian equities will remain bearish, say analysts

    Nigerian equities will remain on the downtrend in the months ahead as quoted companies grapple with macroeconomic challenges and investors gauge the continuing impact of the declining crude oil price and political transition on the economic outlook.

    Investment pundits said quoted equities would in the immediate months continue on the downward trend, although share prices may recover in the latter months of the year.

    Nigerian equities lost N1.75 trillion last year, representing average full-year decline of 16.14 per cent.

    Analysts at Bismarck Rewane’s Financial Derivatives Company (FDC) in their latest review stated that quoted equities would struggle with local and global challenges this year, leaving the market mostly on the negative in the first half.

    “The Nigerian stock market may be in for a prolonged stay in the bear territory due to mounting global and domestic uncertainties. In 2015, a lower return trajectory is anticipated since the market is in for a bumpy ride and some companies would be left behind,” FDC stated.

    According to analysts, the stock market is expected to dwindle further all through the first half and subsequently bounce back in the second half of the year.

    Analysts noted that the likely increases in the United States and euro zone interest rates raises the threats of capital flow reversal and erosion of funds from the equity markets, which, in addition to growing macroeconomic risks, may result in a series of adjustments and prompt a cohesive movement of sectors and stocks prices.

    “The year 2015 is expected to be a mixed year for the equities market as the outcome of a plethora of external and internal events unfold. A possible interest rate hike in the United States and the possibility of a sustained period of low oil prices are significant risks. The outcome of the 2015 elections would also determine investors’ participation and sentiments. The anticipated loosening monetary stance of the Central Bank of Nigeria (CBN) post elections will also have its impact on price and currency stability,” FDC stated.

    They pointed out that returns in 2015 will depend on selecting the right companies in the right sectors, rather than relying on a broad-based approach that depends on the gathering momentum of the overall market position.

    They said the performance of the market might be coloured by the general elections starting on February 14.

    According to analysts, in addition to the global oil market dynamics, the prospects of the Nigerian economy in 2015 hinges on the electoral calendar, and this will mainly determine the macroeconomic outlook during the year.

    “With stocks currently trading at their multi-year lows, we expect an upward trend in the beginning of the year. The anticipated loose monetary stance will be expected to channel additional liquidity to the stock market. However, Investors sentiment will be weighed down by political tensions leading to the 2015 general elections. The tension between the Peoples Democratic Party (PDP) and its major opposition All Progressives Congress (APC) is expected to lead to a lull in the equities market as investors, mostly foreign evaluate the electoral process and outcome whilst fearing post-election violence. Foreign portfolio investors are expected to remain wary of the local bourse until the elections are concluded and possible violent fallouts curbed,” analysts pointed out.

    They noted that with oil prices projected to trend between $50-$70, the global crude price will be negative for the Nigerian economy and in turn the capital market, with the oil stocks expected to bear the brunt of declining oil prices given the thinning out of the sectors profitability.

    Besides, analysts noted that as the US economy gains traction, there could be an increase in interest rates in 2015, which is expected to have a negative effect on emerging and frontier economies. This will lead to heavy portfolio reversals, as investors will opt for safety and security in a much developed market. This may lead to a selloff in local equities as foreign investors exit. However, this may be cushioned by increased participation of local investors as stocks become increasingly attractive.

    “The state of security in the country especially in the north eastern part of Nigeria continues to be worrying. Its effect continues to weigh on the profitability of consumer goods companies as consumer spending in these areas remains weak. It has also in-creased the cost of doing business in these areas. Profits that will be declared, if any, in the financial year 2014 by most companies are likely to be below investors expectation. Most sectors; banking, consumers, oil and gas, conglomerates will not be insulated,” analysts said.

    Analysts said the macroeconomic outlook will likely change significantly depending on the outcome of the general elections, pointing out that 2015 will be distinctly divided into different phases including pre-election phase, handover phase and post-election phase.

    In the pre-election phase, policymaking will be overshadowed by political campaigns and the elections in this period. As a result, most macroeconomic indicators are likely to be influenced by speculative market activities to hedge any unfavourable outcome. The intensity of political activities towards the election could increase security concerns and result in the hike of consumer prices, dampen economic output as well as growth. This is likely to have negative impact on investors’ confidence and increase dollar demand pressure.

    Analysts noted that the immediate period after the elections would still be overshadowed by concerns as parties debate the election results. These challenges will likely affect the macro environment and policies options while the level and intensity of uncertainties will heighten the level of insecurity in most part of the country. Hence, movement and transport of goods and services become difficult leading to an uptick in the inflation rate to above 10 per cent and poor economic output. Investors’ confidence is likely to also decline and lead to an increase in currency pressures as the naira slides to N190-195/$ at the interbank market.

    “In general, the Nigerian macroeconomic environment is expected to be mixed and highly influenced by developments in the global oil and financial markets. However, the medium and long term prospects of the Nigerian economy depend on developments in the oil section, political events as well as enforcement of tax compliance to boost revenue,” analysts stated.

    ‘’One of the positives apart from the obvious that the Nigerian economy has to be less dependent on oil is that prices in the stock market may have hit rock bottom. Current stock prices appear attractive at the moment, but we advise cautious investing with a focus on long term value as opposed to speculating and searching for short term gains. We also expect some volatility over the coming months until after elections. A return to normalcy, the stability in oil prices and the Naira will return some calm to the markets’’.

     

  • Foreign loans repayment crisis looms over naira devaluation

    Foreign loans repayment crisis looms over naira devaluation

    Companies with dollar-denominated foreign and domestic loans are in for a tougher period as depreciation in Nigerian currency and global strengthening of dollar raise a double-edged spiral cycle that may further weaken corporate earnings and returns.

    Following the continuing decline in global crude oil price, naira has suffered significant depreciation and is now trading substantially above the upper limits of the Central Bank of Nigeria (CBN)’s official band naira opens today at N198/$. Leading finance and investment research firm, Financial Derivatives Company (FDC) Limited, says naira may further depreciate at both the official and parallel markets, echoing sentiments by vast majority of analysts.

    According to FDC, Naira may shortly cross the N200/$ rate at the parallel market while it could stabilise at a fair value of between N180/$ and N195/$. At the official market, there could be further depreciation of between three to five per cent.

    The Central Bank of Nigeria (CBN) in late November had devalued the naira with official parity rate of N168/$ and a wider band of +-5 per cent as against the previous rate of N155 +-3 per cent. This indicated a new upper limit of N176/$ as against previous upper limit of N160/$.

    Nearly all banks have dollar-denominated loans including tier 11 capital and correspondent banking facilities among others. Several non-bank companies also have dollar-denominated loans, according to The Nation.

    Skye Bank has raised some $150 million tier 11 capital. Unity Bank has also raised $120 million Tier 11 capital. First Bank of Nigeria had raised $300 million in a subordinated Tier 11 capital issue in third quarter of 2013. The Tier 11 capital transaction had a seven-year maturity and is callable on the fifth year after the issuance date. It carried an initial coupon of 8.250 per cent on the nominal par amount, which resets at the call date to a new fixed rate without step-up until maturity. The Tier 11 capital treatment amortises over the last five years prior to maturity.

    Ecobank Transnational Incorporated (ETI) Plc, the holding company for Ecobank Nigeria and other subsidiaries, last week signed a loan facility agreement with the European Investment Bank (EIB). The dollar-denominated loan facility agreement involved $100 million and will have a tenor of seven year. Sterling Bank plans to raise tier 11 capital of another $200 million in the first quarter of this year. Shareholders of Union Bank of Nigeria (UBN) Plc mid last year approved a $750 million capital raising for the bank including dollar-based debt issues.

    The Nation’s investigation showed that several quoted companies have dollar-denominated loans, including syndicated loans. Latest audited reports and accounts of several companies indicated they have substantial dollar-based loans. For instance, International Breweries had drawn down $25.2 million out of a total syndicated loan of $62 million. It carried interest rate of Libor+1.9 per cent. More than half of Oando’s total loans were denominated in dollars. Oando Group’s total loans stood at N255 billion by the last audited report. Presco Plc, a palm oil plantation and processing company, has outstanding foreign loan of N2.02 billion. It had started the process of a rights issue to raised new equity funds from its shareholders to offset the foreign-denominated loan and restructure its balance sheet. This has however been slowed down by the downtrend at the stock market.

    Head, Africa Strategy, FICC Research, Standard Chartered Bank, Samir Gadio, said the depreciation could be negative for banks and other companies with foreign loan.

    “In principle, the weaker Naira will be negative for banks that have borrowed in foreign currency through the Eurobond, international loan and swap markets because of the higher US Dollar costs in servicing their external obligations,” Gadio said.

    He, however, noted that the depreciation of the Naira has been modest so far by global standards and as such there are no fears of any severe systemic issues in the banking sector at this stage.

    He added that that a significant proportion of the banks’ offshore borrowing is probably hedged against dollar receivables onshore, although not entirely as the dollar-based share of the banks’ loan book has increased in recent years.

    “Meanwhile, another concern is that bank loans to onshore petroleum companies may be affected by the sharp drop in the oil price,” Gadio pointed out.

    Head, research and investment advisory, Sterling Capital Markets, Sewa Wusu, said banks and other companies with dollar-based loans would face financing pressure as they will be required to source more Naira earnings to fund their dollar-based loans.

    “They will definitely face pressure on their earnings; it means they have to source more funds to meet up the funding requirements of their foreign-denominated loans. Tier 11 capital of banks are at a cost and the Naira depreciation will put further pressure on banks’ earnings,” Wusu.

    Wusu, an economist, said the CBN will have no choice but to further devalue the naira if the oil price continues to decline.

  • Foreign reserves to hit $41b

    Foreign exchange reserve, which stood at $39.57 billion on September 10, is expected to hit $41 billion by the end of this month, Managing Director, Financial Derivatives Company (FDC) Limited, Bismarck Rewane, has said.

    At the FDC Breakfast Meeting at the Lagos Business School, he said the slow replenishment of the reserves would continue until they reach $41 billion by month-end.

    Analyses of the reserves based on data from the Central Bank of Nigeria showed that the reserves have risen by over $2.4 billion in the last 10 weeks. The reserves which were at $37.2 billion on June 24 rose to $3.84 billion on July 17.

    Rewane said average oil prices of Nigerian crude remained above $104 per barrel while the positive impact on oil revenue will be felt in October. The United States own to less than two per cent, of exports, compared to seven per cent in 2011.

    Dwindling Nigerian shipments to the U.S. imply that disruptions to Nigeria’s oil supplies are unlikely to trigger oil price rallies. Nigeria imports about 50 per cent of its refined products from the US.

    He said oil revenues forecast in second quarter is $12 billion as against first quarter revenue of approximately $11 billion adding that accruals from oil form major part of the reserves. The reserves will cover 8.2 months of import cover

    Analysing financial sector credit, he said the average opening credit position of the banking system was N358.75 billion in July, about 0.66 per cent lower than June figure. Inflation crept up by 0.2 per cent to 8.2 per cent, the fourth consecutive monthly increase.

    He said the Monetary Policy Committee (MPC) left the monetary policy instruments and stance unchanged in July even as the naira appreciated at the interbank market to N161.85/ dollar but depreciated at the parallel market to N168/ dollar.

    Also, banking earnings were flat and lower than first quarter because of the cumulative impact of the Cash Reserve Ratio (CRR) hike. Also, average corporate earnings for lenders declined by 1.53 per cent in second quarter and stock prices decreased by 3.16 per cent.

  • Foreign reserves to hit $41b by month-end

    Foreign reserves to hit $41b by month-end

    Foreign exchange reserve which stood at $39.4 billion in August 7 is expected to hit $41 billion by the end of this month, Managing Director, Financial Derivatives Company (FDC) Limited, Bismarck Rewane has said.

    In the FDC Breakfast Meeting at the Lagos Business School, he said the slow replenishment of the reserves will continue until they reach $41 billion by month-end. Analyses of the reserves based on data from the Central Bank of Nigeria showed that the reserves have risen by over $2.2 billion in the last six weeks. The reserves which were at $37.2 billion on June 24 rose to $3.84 billion on July 17.

    Rewane said average oil prices of Nigerian crude remained above $104 per barrel while the positive impact on oil revenue will be felt in October. US import of Nigerian crude is down to less than two per cent, of total Nigerian exports, compared to seven per cent in 2011. Dwindling Nigerian shipments to the U.S. imply that disruptions to Nigeria’s oil supplies are unlikely to trigger oil price rallies. Nigeria imports about 50 per cent of its refined products from the US.

    He said oil revenues forecast in second quarter is $12 billion as against first quarter revenue of approximately $11 billion adding that accruals from oil form major part of the reserves. The reserves will cover 8.2 months of import cover

    Analyzing financial sector credit, he said the average opening credit position of the banking system was N358.75 billion in July, about 0.66 per cent lower than June figure. Inflation crept up by 0.2 per cent to 8.2 per cent, the fourth consecutive monthly increase.

    He said the Monetary Policy Committee (MPC) left the monetary policy instruments and stance unchanged in July even as the naira appreciated at the interbank market to N161.85/ dollar but depreciated at the parallel market to N168/ dollar.

    Also, banking earnings were flat and lower than first quarter because of the cumulative impact of the Cash Reserve Ratio (CRR) hike. Also, average corporate earnings for lenders declined by 1.53 per cent in second quarter and stock prices decreased by 3.16 per cent year-to-date.

  • Equities will remain attractive, says Rewane

    Equities will remain attractive, says Rewane

    The stock market will continue to be attractive to returns-minded investors as yields in other asset classes moderate downward, Bismarck Rewane’s Financial Derivatives Company (FDC) has said.

    In its latest economic note, FDC stated that with the steady decline in the yields on Nigeria’s sovereign bonds, the low inflation environment and the retention of the benchmark interest rate at 12 per cent by the Central Bank of Nigeria (CBN), equities would remain the toasts of investors.

    “Stock market activities will continue in the same trend as stability in the exchange rate and declining bond yield should continue to make the equity market attractive,” FDC stated.

    According to the report, the Nigerian stock market has benefitted from significant increase in portfolio inflow to frontier markets this year.

    It, however, cautioned that continued quantitative easing by the United States of America and Europe means there are now echoes of asset bubble ringing around the market as that market has started to see signs of a slowdown of inflows into the equity market as activity level has declined.

    The report pointed out that the yields of FGN bonds have steadily declined following the increased foreign capital inflows and high demand for government debt instruments.

    According to FDC, average bond yield has declined between 300 – 500 basis points (bps) between August 2012 and now.

    “We expect yields to decline further as the country’s risk outlook continues to improve and the rebasing of the country’s GDP approaches. We, however, believe that the market has already priced in the inclusion of Nigerian government bonds on the Barclays emerging market index. The MPC’s decision will steady the bond market activity and prevent huge fund outflow as the naira stability continues,” FDC stated.

    It noted that the recent decision of the Monetary Policy Committee (MPC) of the CBN to retain the Monetary Policy Rate (MPR) at 12 per cent has not had any pronounced impact on the stock market because traders had anticipated the retention of the rate and had priced in this into their pricing dynamics earlier.

  • Nigeria’s revenue may fall over US oil

    The United States (US) increasing oil stock-piles, deepening global uncertainties and weak global demand are likely to suppress oil prices and slash Nigeria’s revenues, Managing Director, Financial Derivatives Company (FDC) Limited, Bismarck Rewane, has said.

    In an FDC Economic report, Rewane said since Nigeria obtains over 80 per cent of its fiscal receipts from oil, a reduction in fiscal revenue especially if production drops will deplete earnings for the country.

    “ Any oil price and or production disruption could easily deplete the government coffers to as low as $20 billion, a depreciation of the exchange rate, loss of market confidence and a possible rating downgrade,” he said.

    The FDC boss said pointers are in favour of an end to the CBN’s tight monetary policy stance and the need to boost growth and lending to the real sector.

    He said the contractionary policy stance has been in play since October 2011 when the Monetary Policy Rate (MPR) was raised by 275 basis points.

    He insisted that the sustainability of a contractionary stance and its stifling impact on growth and the economy justifies the need for a change in policy direction.

    “Our view is that the overdependence on interest rates as a tool for adjustment is precarious. In 2013, the CBN will have to moderate its stance to allow the interest rate decline and exchange rate depreciate,” he said.

    According to him, the Monetary Policy Committee (MPC), as anticipated, left its benchmark interest rate unchanged at 12 per cent per annum during its last meeting for this year.

    He said the decision was based on inflationary risks and uncertainties surrounding the weak global economy and that other policy instruments such as the Cash Reserve Ratio and Net Open Position were left unchanged at 12 per cent and one per cent.

    Likewise, Nigeria’s annual inflation rate increased by 0.4 per cent to 11.7 per cent in October, primarily as a result of exceptional factors such as the flooding which resulted in an increase in food inflation to 11.1 per cent.

    He said the impact of the flooding in 12 states of the country was immediate but was not as severe as expected. Core inflation declined for the fourth consecutive month to 12.4 per cent, which, according to the MPC has created some uncertainty as to the appropriate policy stance to apply.

    Rewane said for the leading economic indicators to have remained positive for two months and the Gross Domestic Product (GDP) growth figure for third quarter to come in lower than the previous year at 6.48 per cent, sends mixed signals on the direction of the Nigerian economy.

    He admitted that government is resolute in its pursuit for fiscal prudence as reiterated by the Federal Minister of Finance. He said that with rising debt service cost of N560 billion that is estimated to increase by 5.67 per cent to N591.76 billion in 2013, the Nigerian debt market may experience respite soon as federal government instruments become more attractive to investors.