Meristem Securities
On the global scene, the Eurostat reported that the Eurozone’s inflation has ticked higher during the period, rising to 2.60 percent in July, up from 2.50 percent in June 2024. This increase in price levels was driven by higher rates in energy (+1.00 percent), housing and utilities (+0.61 percent), and Transportation (+1.09 percent). Looking ahead, we expect this upward trend to continue, partly due to lower base effects on the energy index and sustained demand for services.
However, it is anticipated that the European Central Bank (ECB) will tread cautiously with any potential interest rate cuts, as inflation is on the rise amid ongoing uncertainties.
In the Sub-Saharan region, as part of its debt restructuring efforts, Ghana has announced plans to initiate the final phase of its debt overhaul of its dollar-denominated bonds next week. In June, Ghana reached a preliminary agreement with bondholders to restructure $13 billion in Eurobonds. Two restructuring options have been proposed: the DISCO option, which includes a 37 percent haircut and the issuance of two new bonds maturing in July 2029 and 2035, with interest rates set at 5.00 percent until July 2028, rising to 6.00 percent thereafter; and the PAR option, which offers a 1.50 percent interest rate on new bonds maturing in January 2037, without any haircuts.
This marks a significant milestone in Ghana’s debt restructuring process, one of the swiftest among African nations that have defaulted on debt repayments. While the restructuring may pose challenges for investors, its successful completion is expected to significantly alleviate the country’s debt burden in the long term.
South Africa’s inflation rate fell to 4.60 percent in July 2024, marking its lowest point in three years and nearing the central bank’s mid-target of 4.50 percent. This decline from 5.10 percent in June 2024 is driven mainly by decreasing prices in key categories: food and non-alcoholic beverages (4.50 percent vs 4.60 percent), transport costs (4.20 percent vs 5.50 percent), and housing and utility prices (5.30 percent vs 5.50 percent).
In the domestic economy, the Debt Management Office (DMO), on behalf of the Federal Government, has officially launched the $500.00 million bond with a 9.75 percent annual yield, maturing in five years. This bond is part of a broader $2.00 billion domestic dollar bond programme, available to Nigerians both within the country and in the Diaspora. The primary goal is to attract foreign investments into the country and to strengthen Nigeria’s external reserves.
We anticipate that this initiative, coupled with ongoing government reforms and policies, will boost dollar inflows, support the stability of the Naira, and enhance the country’s foreign reserves. Additionally, the Central Bank of Nigeria (CBN) has announced a surge in remittance inflows, reaching $553.00 million in July 2024, a 130.00 percent YoY increase compared to July 2023. This growth is largely driven by recent policy initiatives aimed at boosting liquidity in Nigeria’s foreign exchange market, including the issuance of licenses to new International Money Transfer Operators (IMTOs) and the adoption of a willing buyer-willing seller model, which ensures IMTOs have timely access to Naira liquidity. Looking ahead, we expect remittance inflows to continue their upward trajectory, supported by these policies and additional strategic efforts to enhance stability in the FX market.
In another development, the Federal Government has granted approval for the Nigerian National Petroleum Company (NNPC) Ltd to use N2.10 trillion from its 2023 final dividends owed to the federation to cover petrol subsidies from August to December 2024. Additionally, the government has suspended the payment of 2024 interim dividends, royalties, and taxes to the Federal Government for the remainder of the year. These actions aim to address the gap in PMS imports between the NNPC and the Federation, ballooning subsidy bills, reconcile foreign exchange discrepancies, and enhance NNPC’s cash flow. By improving liquidity, these measures are expected to alleviate supply constraints on petrol, helping to stabilize domestic fuel prices.
On the corporate front, Oando Plc has finalized the $783 million acquisition of Eni’s subsidiary, Nigerian Agip Oil Company (NAOC), after receiving the green light from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) following a nine-month regulatory review. This acquisition doubles Oando’s stake in Oil Mining Leases (OMLs) 60, 61, 62, and 63 from 20 percent to 40 percent, significantly enhancing its production capacity. Looking ahead, this revitalisation of previously underutilized assets is expected to increase Oando’s total reserves, strengthen investor confidence in the oil and gas sector, and boost Nigeria’s oil output as operations ramp up.
Equity market
The Equities market last week sustained a bearish trend, as profit-taking activities on Dangcem (-10.00 percent), further drove the NGXASI down by 1.16% WoW to settle at 95,973.45 points thereby reducing the year-to-date (YtD) performance to 28.35 percent. Across sectors, the performance was mixed, as NGXOILGAS (+3.54 percent WoW), NGXINS (+1.90 percent WoW), and NGXBNK (+0.37percent WoW) closed in the positive zone, while NGXINDUSTR (-4.94 percent WoW) and NGXCNSMRGDS (-1.42 percent WoW) closed in the red zone.
At the T-Bills primary market auction held during the week, NGN409.98 was offered, compared to the NGN216.08bn at the last auction. The total subscription increased significantly to NGN1.03trn (vs NGN218.20bn at the last auction), while the amount allotted also increased to NGN291.03 (vs 216.08bn at the previous auction). As a result, stop rates on the 91-day, 182-day and 364-day instruments decreased to 18.20%, 19.20% and 20.90% (vs 18.50%, 19.50% and 21.9% at the previous auction), respectively. The secondary fixed-income market traded on a bullish note this week, as both average T-bills and bond yield declined to 22.91% and 21.00% (vs 24.41% and 21.26% in the previous week), respectively.
Fixed Income market
ARM Securities
Following a series of auctions last week, the DMO conducted its primary FGN bond auction for August 2024, offering N190 billion worth of bonds across the reopening of the APR-2029 (N70 billion), FEB-2031 (N70 billion), and MAY-2033 (N50 billion) instruments. The average bid-to-cover ratio surged by 149bps to a significant 2.42x (vs. 0.93x at the previous auction). This is following an increase in investors’ demand for the instruments, notably in the MAY-2033 (+509bps to 7.50x) instrument.
Consequently, the average stop rate at the auction fell by 6bps to settle at 20.90 percent compared to 20.96 percent in the previous month. Overall, the DMO sold N374.75 billion worth of instruments, representing a 1.97x overallotment.
At the primary Nigerian Treasury bills (NT-bills) auction, the CBN offered N409.98 billion worth of treasury bills across the 91-day (NGN60.69bn), 182-day (NGN66.25bn) and 364-day (NGN283.04bn) bills. The average bid-to-cover ratio rose by 25bps to 2.51x (vs. 2.25x at the last auction). This increase was driven by heightened demand for treasury bills across all tenors, especially the 364-day bill. As a result, average stop rate declined by 53bps to 19.43% from 19.96% at the previous auction.
This is following decreases in stop rates across the tenors (91-day: -30bps, 182-day: -30bps and 364-day: -99bps). Despite the high demand the CBN sold NGN291.03bn worth of NT-bills, a 0.71x the amount offered. In the secondary market, the NT-bills average yield declined significantly by 263bps WoW to close at 22.32 percent. This is following repricing across the tenors as investors sought to fulfill unmet bids at the primary auction.
Likewise, the FGN bond market closed on a bullish note as the average yield went down by 8bps WoW to settle at 19.62 percent. This was driven by buying interest in the short and mid-end of the curve, particularly in the MAR-2025 (-143bps), MAY-2033 (-43bps) and FEB-2034 (-45bps) instruments.
Consequently, the overall Naira fixed income market concluded the trading week with positive sentiment as the average yield decreased by 135bps WoW to 20.97 percent.
This week, we anticipate that the bullish trend in the secondary market will persist as investors seek to capitalize on their unsuccessful bids at the recent auctions. This is particularly likely given the significant oversubscription observed at both the FGN bond and NT-Bills auctions. However, tight liquidity conditions may potentially dampen this momentum.
