FSDH Merchant Bank worried about falling I&E Window deals


DMO may use $2.8 Eurobond to redeem local debts

The declining value of transactions at the Investors and Exporters Window (I&E Window), which recorded $1.98 billion in November, is a cause for renewed concerns, especially as uncertainty has hit the price of crude oil at the international market.
 
The amount, which is the the lowest figure recorded since August 2017, is an indication of foreign investors’ cautious approach to investing in Nigeria, even as capital flow reversal thrive on politically tensed environment.
 
The Head of Research at FSDH Merchant Bank Limited, Ayodele Akinwunmi, during the lender’s monthly economic outlook, said the development is worrisome, especially now that Nigeria’s major foreign exchange earner is going through volatility.Citing the data obtained from the FMDQ OTC Securities Exchange on the total capital importation through the segment, he noted that CBN remained the largest contributors to the inflow in November, a trend observed in the last three months.

 
“Crude oil is important to the Nigerian economy as the major source of revenue for the government and the largest supplier of foreign exchange to the country. A significant drop in either the price of crude oil or production will directly have a negative impact of the fiscal position of the country.
 
“It will also cause major macroeconomic instability, particularly in the exchange rate and inflation rate. Despite these fairly positive developments, we are aware that the crude oil market is very volatile, therefore it is crucial to learn from the events that happened in 2014 through to 2017, to take proactive measures against unwarranted economic crisis in Nigeria.
 
“Government at all levels must intensify efforts to implement policies that will grow the non-oil sectors of the economy,” he said. Meanwhile, indications have emerged that the Debt Management Office (DMO) will use the converted proceeds of the just launched $2.8 billion Eurobond to redeem the maturing government securities, leaving investors with huge liquidity looking for investment outlet this month.
 
Already, DMO, through the CBN, has cancelled the Nigeria Treasury Bills auctions scheduled for December 13 and 20, 2018, while it will redeem the maturing securities.The immediate results would be an expectation of falling yields (lower costs) on government securities and the interest rates in money (inter-bank) market to drop in December.
 
Speaking on the development, Akinwunmi said this in line with the trend observed in December 2017, following the issuance of Eurobonds, but would increase liquidity in the market.
 
“FSDH Research expects a total inflow of about N2.68 trillion to hit the money market from the various maturing government securities and Federation Account Allocation Committee (FAAC) in December 2018. We estimate a total outflow of approximately N579 billion from the various sources, leading to a net inflow of about N2.1 trillion.

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