Being an Analyst Note issued by Proshare Research on October 14th, 2022 

Financial Fragility of the NNPCL amidst Profit Announcements Worry Business Economists

The Capital Commitment Agreements of the Nigerian National Petroleum Company Limited (NNPCL), detailed in its latest financial statement, highlights the company's financial fragility despite the huge 2021 profit after tax. Analysts observed financial constraints in the NNPCL report, which has led to some commitment deals with its business partners. One deal involves a cash-for-crude Forward Sales Agreement (FSA) where the partners make upfront payments to the NNPCL and the NNPCL, in turn, supplies crude oil and gas in exchange for the payments. The NNPCL is in such a deal with Eagle Export Financing Limited, NLNG, and Lekki Refinery Funding Limited, among others. Analysts doubt the continuous capacity of the NNPCL to deliver on its obligation to provide crude to the partners, given the country's challenges of low crude production occasioned by the legacy issues in the industry.   

Analysts Pencil in 21.26% Inflation for September 2022

As the National Bureau of Statistics (NBS) prepares to publish the inflation rate for September, Analysts say the consistent devaluation of the Naira may have informed a further spike in inflation to 21.26%. In August, headline inflation peaked at a second 17-year high of 20.52%, just as food inflation rose to 23.12%. However, the data from last month showed that Month-on-Month (M-o-M) inflation moderated to 1.77% from 1.82%, the lowest since last December. Analysts consider this a slight improvement attributable to a streak of hawkish monetary policy decisions by the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC), which has seen the base rate rise by 300bp since May. Nationwide floods are, however, expected to put upward pressure on food prices and food inflation; analysts, therefore, pencil in a 24% food inflation rate for September 2022.

Tech Companies Hit by FX Challenge, Business Sustainability Considerations Emerge

The Association of Licensed Telecommunications Operators of Nigeria (ALTON) said members have been finding it challenging to access FX since the beginning of the year. The issue of FX is a critical one because this poses a threat to the liquidity of tech companies. Tech companies have international obligations to fulfil because they import all their pieces of equipment. Analysts believe the technology industry is as critical as any other sector in the country. The CBN may need to increase tech companies' access to FX to avert the domino of business failures .

Participants in the Renewable Energy Sector Partner to Build USD60m Mini-grid

CrossBoundary Energy Access Nigeria (CBEA) and ENGIE Energy Access Nigeria (ENGIE), two major firms in Nigeria's renewable energy sector, have announced a project finance agreement to build a USD60m portfolio of mini-grids that will provide electricity to more than 150,000 people in Lagos as part of efforts to address the nation's current energy crisis. The partnership structure entails CBEA providing the capital for the transaction alongside the Performance Based Grant (PBG), funded by the World Bank and administered by Rural Electrification Agency (REA) and the Nigeria Electrification Project (NEP). The deal aims to increase economic prospects for underserved rural populations in Nigeria by providing access to clean, inexpensive technologies. At the same time, the financing arrangements between the two private corporations offer a framework for attracting more private capital to the country's renewables sector. According to analysts, this sends a message to global investors to invest in Africa's renewable sector and work with the continent to close its yawning energy gap.

Profit Taking Weighs Down Local Equity Market

The NGX All-Share Index slipped by 0.02% to settle at 47,524.38 Index points against 47,531.84 in yesterday's trading session. The NGX Market CAP recorded a N4.06bn dip. Year-to-Date (YTD), the NGX ASI grew by +11.26%. Although Sectorial performances were broadly positive, eleven (11) sectors closed positive, three (3) sectors closed negative, and four (4) sectors closed flat. UACN fell by 9.76% to close at N9.25 per share, while newly listed Geregu Power was down by 9.02% to close at N110 per share. Analysts attribute the decline in the equity market to profit-taking on the NGX Main Board (see table 1 below).

Table 1: Top Five (5) Losers 

DMO Debunks Debt Restructuring Rumour 

The Debt Management Office (DMO) published a press release debunking an alleged debt restructuring reported by international media on Wednesday. The document stated that the Minister's statement was misinterpreted and that the country was still committed to meeting all its debt obligations, local and international. However, the report stated the government was looking forward to exploring other appropriate debt liability management options such as bond-buy back and bond exchanges. Analysts believe the clarification may restore investors' confidence and curb the selloffs seen across the domestic bonds and Eurobond market yesterday. 

Higher Rates on October FGN Bond Issuance May Attract Larger Investor Interest

The Debt Management Office (DMO) announced the Re-opening of its monthly bond issuance, slated for 17th to 19th October 2022. The offer for subscription is a total of N225 billion notes, with N75bn each across the three tenors. The rate for the FGN APR 2029 maturity has been adjusted to 14.55% compared to the 13.53% offered in September, while the rates for FGN APR 2032 and FGN APR 2037 stayed at 12.50% and 16.2499%, respectively. A minimum subscription of N50m and a multiple of N1000 are required to invest. Analysts expect the adjusted rate of the 10year tenor to attract investors to the auction slated to hold next week. 

Binance launches a $500m Lending Project to Support Bitcoin Mining

Due to the difficulty involved in Bitcoin mining, Binance has recently launched a $500m miner lending project to support BTC mining and other mining infrastructure providers. According to the Exchange, the project is to provide a debt financing service to both public and private blue-chip bitcoin mining, with a loan for an 18-24-month term. Furthermore, the interest rate for the loan, earlier quoted at 5% has been raised to 10%. Analysts pointed out that Binance's smart pool supports the SHA256 algorithm. The exchange intends to collaborate with cloud mining vendors to launch mining products in which hash power will be purchased directly for Bitcoin mining and digital infrastructure providers.

For the past four days, the cryptocurrency market has undergone a retracement, with the global market cap seeing a decline of roughly -3% from the previous week. However, the ongoing wideness of the Bollinger band suggests that the market is volatile, with the top band at US$19,911.84 and a lower band of US$18209.56. These price levels reflect the immediate resistance and support levels for Bitcoin. With the global market cap increasing by +3.65%, Bitcoin is set to increase by +3.22% from US$18,319.82 to US$19,619.99. Analysts noted that if Bitcoin could cross over the 50-day exponential moving average of US$20,044.21 price level, then the coin could be seen posting a decent increase at the US$20,200 level (see chart 1 below).

Chart 1: Bitcoin Price Movement