Being an Analyst Note issued by Proshare Research on February 28th 2023

Slow Execution Hobbles NLNG Capacity Upgrade

With a capacity to process 22m tonnes per annum (mtpa) of LNG, produce 5m tonnes per annum (mtpa) of Natural Gas Liquids (NGLs), and export LNG to markets across the world, mainly in Europe, Asia, and Americas, Nigeria’s LNG Limited (NLNG) is a significant player in the global LNG market. Specifically, its export markets include Spain, Italy, France, Turkey, South Korea, and other countries in the Americas. However, the NLNG had intended to start domestic LNG supply around July 2022 but fell behind schedule. The company recently disclosed that it is close to actualizing its plan to supply LNG to the Nigerian market after signing Sales and Purchase Agreements (SPAs) with three power firms as off-takers, who are to set up receiving infrastructure to enable the project to begin. By offering an initial volume of 1.1 mtpa for domestic energy generation in addition to the current supply of 100% of its liquefied petroleum gas (LPG) to the domestic market, we believe the move will deepen domestic gas utilization in Nigeria. More so, the NLNG has a viable model to boost gas revenue, promote the development of local content, and seize market possibilities in the competitive global LNG market.

Continued Scarcity of New Naira Notes May Fuel Inflation   

A survey of markets around the country shows that traders have, following the continued cash crunch, begun accepting the old currency in return for products and services at a premium. This is despite the expiration of the February 10 deadline stipulated by the Central Bank of Nigeria (CBN) for the swap of the N500 and N1000 notes. The policy had initially included the swap of the N200 note but in a national address on Feb 16, President Buhari noted the pains the policy has caused Nigerians and directed that the N200 would be re-introduced into circulation to assuage the severe cash crunch experienced within the economy. 

In their reaction to the developments in markets where premiums are being charged as risk protection by sellers in cash transactions completed in the out-phased notes, Analysts blame the situation on the impasse between the FG and CBN on the one hand and the State Governors on the other hand. Ten state governments had obtained ex-parte rulings from the Supreme court suspending the currency swap policy. Analysts say that the situation of uncertainty on the legitimacy of the denominations in question could spur short-term term inflation as the cost of transactions and commodities become inflated. Experts have advised that the FG and State Government reach an out-of-court settlement to bring an end to the atmosphere of uncertainty. Experts also argue that CBN must accelerate the disbursement of larger volumes of the new currencies to banks. Analysts also noted that a new and more convenient deadline for the swap of the old currency is unavoidable given the realities.

Nigeria’s Eurobond Turn Positive before Election 

The Eurobond market turned positive from the previously bearish sentiment triggered by Moody’s recent downgrade to Caa1 on January 27^th. The rally in the Eurobond market began on Thursday, 23 February 2023, before the election, with an overall rise in bond prices while the average benchmark yield dropped to 11.65% from 12.03% from the previous trading session.

This discovery is contrary to Bloomberg’s observation that the market has recorded its best gain due to the election results showing the APC candidate leading. According to the report, the sovereign bond ranked five of 10 top-performing emerging market bonds. However, analysts believe the risk-on sentiment cannot be attributable to a single political candidate since the rally began before the release of electoral results. Also, the strong buy interest observed was driven by institutional investors as foreign investors instinctively avoid below-investment-grade bonds (see chart 1 below).  

Chart 1: 

Source: DMO, Proshare Research 

Nigeria Breweries Proposes Dividend Payout of N13.87bn

Nigerian Breweries has announced a dividend payout of N13.87 bn, which is set to trigger a surge in investor interest in the company. The announcement has been welcomed by investors, with the company's share prices recording a significant increase in the last trading session. Reports show that the company's shares opened at N47.50 and closed at N50 per share, representing a 5% increase in market capitalization. Analysts believe that Nigerian Breweries' financial performance has raised investor confidence.

Overall, the recent dividend payout announcement by Nigerian Breweries has sparked investor interest, signaling a positive outlook for the company's future. The company recorded a growth of 25.92% in its revenue in its recently released audited financial result while posting a 4.06% increase in its profit after tax. Analysts attribute the increase in revenue to the upward adjustment in price but are unclear if there was an increase in consumption. Analysts would however investigate more and keep our viewers up to date as to the latest development.

State Bank of India Raises a US$1bn Syndicated Social Loan

The State Bank of India (SBI) raised US$1bn through a syndicated social loan from global banks for further lending to certain kinds of socially impactful businesses in India. The loan facility was arranged through Japan-based MUFG Bank and Taiwan-based Taipei Fubon Commercial Bank Co. Ltd. The facility will be used to further lend to microfinance institutions and self-help groups. This is a significant milestone for the Indian ESG financing market as it is the largest ESG loan by a commercial bank in the Asia Pacific and the second largest globally. Additionally, this is SBI’s inaugural social loan and its first syndicated loan in the past five years. There has been a lot of buzz concerning ESG regulation as institutions and countries seek to improve regulatory supervision. This social loan could help stimulate attention to sustainability concerns in India even as regulatory authorities shape India’s green financing guidelines.