ThinkBusiness Today - May 24th

E kaaro o, Ututu Oma, Barka da Safiya – Good morning, welcome to ThinkBusiness Nigeria.

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I believe you use WhatsApp! Have you sent any message that you regretted sending just immediately after doing so, or just simply wants to correct mistakes in spelling and or grammar?

Good news. WhatsApp will soon allow users to edit messages within 15 minutes of sending them. In a WhatsApp blog message released, WhatsApp says, “we are excited to bring you more control over your chats”. It concluded by saying, “this feature has started rolling out to users globally and will be available to everyone in the following weeks”.

Unfortunately, WhatsApp cannot erase the memory if others have seen the message before the edit.

Markets

• NGX All-Share Index (ASI) climbed 252.06 (0.48%) points to close at 52,621.19, representing a 1-week gain of 0.39%, a 4-week gain of 2.46%, and an overall year-to-date gain of 2.67%. The positive movement can be attributed to a combination of bargain hunting on low priced stocks and renewed buying interest in banking stocks and consumer goods like Transcorp (9.85%), Unilever (9.70%), ACCESSCORP (3.45%), DANGOTE SUGAR (1.07%), FBNH (7.54%), GTCO (2.02%), PZ (8.82%), STANBIC (5.33%) and ZENITH (2.08%)

• Oil prices rose by nearly 2% on Tuesday after the Saudi energy minister warned short sellers to “watch out” and as seasonal demand for fuel is set to rise at the start of the U.S. driving season this weekend. WTI Crude, the U.S. benchmark, was up by 1.93% at $73.44. The international benchmark, Brent Crude, traded at $77.15, up by 1.53%.

• The Naira appreciated at the I & E window by 0.15% to close at N464.42/$. However, it depreciated at the parallel market by 0.18% to close at N760/$.

• Natural gas futures extended their losses yesterday as traders mulled a less-than-inspiring cooling demand outlook and as momentum from last week’s supportive inventory data continued to fade into the rearview. Natural gas futures declined by 0.83% to close at US$2.38

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National Headlines

• 139 banking licenses revoked – The Central Bank of Nigeria (CBN) has revoked the operating licenses of 132 microfinance banks in the country, alongside those of four primary mortgage banks and three finance companies. This was disclosed in the official gazette of the Federal Government, published on the website of the CBN on Tuesday. The gazette stated that the licenses of the financial institutions were revoked because they “ceased to carry on in Nigeria, the type of business for which their licences were issued for a continuous period of six months; failed to fulfil or comply with the conditions subject to which their licences were granted; or failed to comply with the obligations imposed upon them by the Central Bank of Nigeria in accordance with the provisions of Banks and Other Financial Institutions Act (BOFIA) 2020, Act No. 5.”

• Transition in top gear – In less than a week, President Muhammadu Buhari will end his tenure as a two-time elected President of Nigeria. There will be a valedictory federal executive meeting today. The President is expected to thank all the ministers and his aides for their service to the nation. But what has characterised the government in its last days is the feverish momentum to get so many things done before they leave office. The President has perhaps made more appointments in the last few months compared to the last two years. Perhaps, as a reflection of modern times, or as a symbol of his frequent absenteeism, the President virtually commissioned three projects yesterday.

Global Headlines

• No more password sharing on Netflix? – For many movie and documentary lovers in Nigeria, it may soon be difficult to share your passwords with friends and families. According to reports monitored on CNBC, Netflix says it has started a clampdown on password sharing that allows multiple people to share in the streaming service. The plan was originally scheduled for the first quarter this year, but it is now going ahead in this quarter. It is estimated that Nigeria las less than 50 thousand subscribers.

• Markets edgy as debt ceiling negotiations still inconclusive – Asia and European markets are expected to be on the edge as they open this morning, following inconclusive debt ceiling negotiations by the US President Joe Biden and the House Speaker Kevin McCarthy. While the conversations have narrowed yesterday, there is no conclusion yet and it is widely regarded that the deadline to avoid a default is June 1.

• Apple and Broadcom – Apple on Tuesday announced a new multibillion-dollar deal with Broadcom to develop 5G radio frequency components in the U.S. Apple said its deal with Broadcom is part of its 2021 commitment to invest $430 billion in the U.S. economy. The move marks the latest phase of a partnership between the two companies, as Broadcom announced it would sell $15 billion in wireless components to Apple in 2020. It marks the continuation of push by the US government that technology companies such as Apple invests in hardware in the country and diversify production away from China.

• Alibaba cutting workforce by 7% - Alibaba is cutting 7% of the workforce in its cloud computing division as the unit gears up for an initial public offering. This comes after it announced plans in March to split the company into six business units each with their own chief executive and board of directors.

News Analysis - Firms raised commercial papers as interest rate hike

Later today, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will conclude its third meeting of the year. I expect that the MPC will leave rates unchanged (Please see 22 May edition).

In its last meeting in March, it raised the Monetary Policy Rate (MPR) to 18% and left other metrics unchanged, as the MPC and the CBN returned to a more orthodox approach to rein in inflation. Between March 2022 and March 2023, the CBN raised rates six times to reach 18%. That rate change was highest since the Bank adopted a new monetary policy framework and anchor – MPR, replacing the previous monetary policy anchor – Minimum Rediscount Rate (MRR) in November 2006.

As expected, large and medium sized companies with significant liquidity and cash flow for their operations, have seen their borrowing costs up significantly. In some instances, prime lending rates, as a markup of the MPR went up by as much as 6% – 8%. Available data (see below) now shows that these companies have started to issue commercial papers instead, and lowering their operational financing costs, when compared to bank borrowing.

Value of Quoted Commercial Paper at FMDQ (In Billions of Naira)

The value of quoted commercial papers on the FMDQ Exchange stood at N539.22bn at the end of the first quarter of 2023 with the total outstanding value of CPs rising to N669.36bn at the end of the same period. According to monthly reports from the FMDQ exchange, there has been a sustained increase in commercial papers quotations since the beginning of the year.

Specifically, for March 2023, the total value of CPs quoted on the FMDQ Exchange was N354.18bn, representing a m/m increase of 247.80 per cent (N252.34bn) from the value of CPs quoted in February 2023. Quoted CPs were issued by institutions from various sectors including manufacturing, agriculture, financial services, real estate, telecommunications, commodities trading, and general commerce.

For many of these companies, they have priced in future increases in MPR. The average yield (also rises as interest rate rises) ranges from 11% to 15%. For instance, MTN recently issued a 188-day commercial at a yield of 11% and a 267-day commercial paper of 12.5%.

However, while large and medium sized companies with good credit ratings can access this alternative financing arrangements for their operations, it is not the case for small companies. Small companies bear the brunt of changes in interest rates, compared to large and medium sized companies. Since it is also a largely uncollaterized credit, financial system watch dogs, including the CBN will continue to watch for the quality and frequency of some the commercial papers issued by these companies.

This Week

• The Monetary committee of the Central Bank of Nigeria (CBN) concludes its two-day meeting today. In the last meeting, the MPC hiked MPR to 18% and left other rates unchanged.

• The National Bureau of Statistics (NBS) is expected to release growth data for Q1 2023 on Thursday 24^th May 2022. The Q4’22 data shows that Nigeria recorded 3.52% growth.

• Other data from NBS this week are Company Income Tax (Q1 2023) and Sectoral Distribution of Value Added Tax (Q1 2023)

• The Central Bank Nigeria (CBN) will issue a total of rollover N180.45billion treasury bills on Thursday 25^th May 2023. The 91-days, 182-days, and 364-days will seek to raise N9.9 billion, N1.8billion and N168.7 billion respectively.

• Office for National Statistics (ONS), UK is expected to release its Inflation report for April on Wednesday 24^th May 2023. CPI eased to 10.1% y / year in March 2023, down from 10.4% in February but more than market expectations of 9.8%.