Nigeria Content Online

The
downward country rating of Nigeria by Fitch Ratings, the international
rating agency, may not significantly affect Nigeria’s debut at the
international bond market, says a financial analyst.

Nigeria
plans to raise $500 million from the international debt market before
year end. Razia Khan, regional head of research, Africa Global
Research, Standard Chartered Bank, London, said though the downgrade
was not unexpected, there were clear guidance on what the country
needed to do in order to retain the confidence of the international
investing community.

“Ahead of its maiden Eurobond, the market implications of the Fitch outlook revision are probably limited,” Ms. Khan said.

“However,
there is considerable market expectation that any eventual external
debt issuance by Nigeria is likely to trade tighter than
similarly-rated peers,” she said in her quick view of Nigeria’s latest
sovereign rating.

Concerns about spending

She said there have been concerns about the way Nigeria spends her revenue, a fact reflected in the Fitch Ratings report.

“The
drawdown of the excess crude account and fall in international reserves
are factors that have worried investors, but the Fitch move is
altogether more measured, and strikes a good balance between
considering near term cyclical pressures and the potential upside
further out,” she added.

The
excess crude account (ECA), which stood at over $20 billion in 2007, is
now about $500 million. Last Thursday, Nigeria’s foreign reserves
dropped to $33.91 billion, its lowest level in several years.

Ms.
Khan said there was need for the institutionalisation of oil savings,
fiscal improvements, including a removal of fuel subsidies, and greater
transparency overall in order for Nigeria to enjoy the confidence of
the international investing community.

“It
is important to note that the measures which Fitch has identified as
important for Nigeria’s outlook to return to stable are already being
implemented.

“For
instance, we understand that Fitch will view the passing of the Bill to
establish the Nigerian Sovereign Wealth Fund very positively,” said the
minister of finance, Mr Olusegun Aganga.

He
added that the Bill is being drafted, and expressed the hope that it
will receive a positive and speedy reception in the National Assembly.

Effect on sub national ratings

Fitch’s
downgrade also had a spiral effect on other ratings within the country,
as the ratings agency has revised Lagos State’s long-term foreign
currency rating outlook to negative from stable, and affirmed the
actual rating (BB-).

Samir
Gadio, emerging markets strategist at Standard Bank, said such a
development was expected since Lagos State’s rating and outlook were in
line with those of the sovereign. He said this does not necessarily
suggest deterioration in Lagos State’s operating environment.

Lagos
State is currently in the debt market to raise N275 billion in multi
tranches funds for developmental purposes. The latest entrance is the
N50 billion infrastructure renewal bond opened in July.

Last
year, Fitch also assigned Rivers State a long-term foreign and local
currency ratings of ‘B+’ and a national long-term rating of ‘AA-, the
highest subnational rating in the country.

The governing board
of the Petroleum Products Pricing Regulatory Agency (PPPRA) yesterday
met with officials of the Petroleum and Natural Gas Senior Staff
Association of Nigeria (PENGASSAN) in Abuja on ways of aborting a
crisis over a demand for the reinstatement of two members.

Sources revealed
that one of the key resolutions of the meeting was the immediate
reinstatement of the two officials on or before next week Tuesday,
ahead of the next meeting of the board.

But it was gathered
that even as the two officials are expected to be issued with fresh
letters, latest next Monday, reinstating them to their former positions
as well as being paid the backlog of their salaries and entitlements
for the period, it might not be smooth sailing for them to resume their
seats.

The affected
members , Phillip Salvation and Daniel Afiakurue, who were General
Managers, finance and administration, and operations until they were
suspended in September 2007, along with the then Executive Secretary,
Oluwole Oluleye, over allegations of impropriety and corruption by the
Federal Government.

After two years of
investigation by the Economic and Financial Crimes Commission (EFCC)
the three were recently cleared of all allegations.

Though Mr. Oluleye
has since December 2008 been retired with full benefits, the other two
officials, who still had long years of service, were yet to be
reinstated by the PPPRA management for lack of vacancy.

It was gathered
that the management had argued that it would be difficult to reinstate
the two, as directed by the office of Secretary of Government of the
Federation (SGF), as they were not consulted when the Federal
Government took the decision to suspend them from office.

Besides, the
management claimed that in the wake of the suspension of the three
officials, their positions were filled by new appointees, Gbenga
Komolafe, as acting General Manager (F&A), and Joseph Dogo as
acting General Manager (Operations).

Ultimatum

But PENGASSAN,
early this month, reportedly issued a 14-day ultimatum threatening to
embark on a nationwide strike if the directive by the SGF for the board
to find accommodation for the two was not met.

The crisis
degenerated, as the PPPRA management accused PENGASSAN of over-reaching
itself with its insistence on the reinstatement of the two officials,
since the issue had nothing to do with the welfare of its members, a
source said.

Joint conciliatory
committee meetings called for Kaduna between PENGASSAN executive
committee and PPPRA management to find a way out of the crisis was
reportedly ignored by Mr. Dogo on two occasions, resulting in the call
by the oil workers’ union for his immediate sack in line with the
dictates of labour laws, which stipulates that officials should be
summarily relived of their positions after three cases of
insubordination.

Prior to the
expiration of the ultimatum by the PENGASSAN last Thursday, it was
learnt that the PPPRA board had to take the matter before the Minister
of Labour and Productivity, Chukwuemeka Wogu, who called for an
emergency board meeting held yesterday to forge reconciliation between
the union and management, and avert the strike.

A growing African
food sector can yield private sector returns on the back of government
support, said a report on Tuesday, which also said that a global grain
reserve may be needed to protect consumers from price spikes.

Local initiatives
aiming for an African equivalent of the Green Revolution, which swept
developing countries in the 1970s and 1980s, needed coordination, the
report added.

For example, an
African Union (AU) strategy aimed to drive economic development through
investment in agriculture at a tenth of national budgets, given new
impetus by a 2008 food crisis, which prompted $20 billion aid for
agriculture.

“It’s a focus on
the great and proven potential of African agriculture,” said Imperial
College London’s Gordon Conway, chair of a panel of authors of the
report titled ‘Africa and Europe: Partnerships for Agricultural
Development’.

“We can continue to
parachute in sacks of grain, but it’s much better to focus on making
sure the seeds and fertilisers are present in the hands of the dealers
in the villages. We are in a period of optimism about the prospects for
Africa and African agriculture,” the report concluded.

The Green
Revolution in Mexico, India, and elsewhere met large increases in
yields through steps such as investment in irrigation, fertilisers, and
high yielding crops.

In Africa, cereal
yields were as little as one third those in developed countries, said
Lindiwe Majele Sibanda, another author, but she pointed to successes,
for example, in Nigerian cassava and of the adoption of higher yielding
rice varieties.

“Africa is now organised and ready for business,” she said.

The AU initiative
aim to achieve 6 percent annual growth in farm output by 2015, compared
with 3 percent annually over the past decade. Tuesday’s report cited
estimates that the sector may be worth $800 billion by 2030, compared
with $280 billion now.

It intends to
galvanise European private and public sector investment, following
similar investment in African farmland and businesses by large emerging
economies including China.

Private sector
investment would not over-turn problems of malnutrition, however, where
200 million Africans are under-fed and 5 million die annually from
hunger. This requires public support, possibly including a global grain
reserve to ease food price spikes which hurt the poor more, the report
said.

“Food price spikes,
particularly the one in 2007-08, had a devastating impact on African
consumers. Speculators drive these spikes higher than they would
otherwise be,” said Mr. Conway.

“These spikes need
some form of physical grain reserve to moderate them,” he added, saying
that he was not advocating a government takeover of commodity markets.

OPEC member,
Algeria, expects its energy production and exports to shrink in 2011,
pushing earnings from oil and gas down 4.5 percent on the forecast for
this year, the finance ministry said.

Revenues from oil
and gas sales abroad are set to decline to $42.2 billion from the $44.2
billion forecast for this year, according to a document drafted by the
finance ministry, which was obtained by Reuters.

The forecasts in
the document for 2010 and 2011 are both made on the basis of a nominal
average price for crude oil of $60 per barrel, excluding the influence
of price fluctuations on the forecast revenues.

Asked to explain
the forecast drop in earnings for 2011, finance minister, Karim Djoudi,
told Reuters: “It’s because, regarding quantities, production and
exports will decline.” Algeria supplies about a fifth of Europe’s
energy needs and is also the world’s eighth largest crude exporter.

Egypt is drafting
new legislation to boost investment in its mining sector, a minister
said in remarks published on Tuesday, as the country seeks to
capitalise on renewed interest in gold mining in its Eastern Desert.

Pharaohs once dug
up gold in the desert to gild amulets and sarcophagi, but the industry
faded in the 20th century largely because of curbs on foreign
investment imposed by President Gamal Abdel Nasser.

Other changes to Egypt’s mining code in 2008 improved patronage,
attracting firms such as Centamin and Canadian mining company, Nuinsco.
The Eastern Desert, littered with pharaonic mines, is now seen as a
potentially lucrative source of gold.

Oil dropped to
around 82 dollars per barrel on Tuesday, consolidating after two days
of gains, as the dollar rose, ahead of a report expected to show an
increase in U.S. crude oil stockpiles.

U.S. crude for
December CLc1 fell 60 cents to 81.92 dollars, losing ground after
rising almost two dollars in the previous two days. ICE Brent LCOc1
lost 42 cents to 83.12 dollars.

Oil also came under
pressure from a rising dollar. Crude prices are more dependent on
dollar fluctuations than at any time in the last 14 months, as
speculation intensifies that the U.S. Federal Reserve will embark on a
fresh round of monetary stimulus to boost recovery.

Aero Contractors Airlines said, on Monday, that the evacuation of passengers from one of its aircraft that caught fire on Sunday at the Murtala Muhammed Airport, Lagos, followed internationally recognised safety procedures.

The News Agency of Nigeria reports that some passengers on the flight, from Port Harcourt to Lagos, sustained injuries when the airline’s Boeing 737 aircraft landed and caught fire.

The airline, in a statement by its Media Consultant, Simon Tumba, said that the evacuation was carried out after the aircraft had landed safely in Lagos. “The evacuation was ordered by the captain following internationally recognised safety procedures after-on-board smoke detectors were activated,” he said. “We now believe that this was due to humidity and warm air mixing in the cabin forming a smoke-like vapour. As the crew could not be 100 per cent certain that the vapour was harmless after landing, all the 84 passengers were evacuated to the tarmac where they were moved to the airport terminal in a bus.”

Mr Tumba also added that Aero was in constant touch with the passengers, the Nigerian Civil Aviation Authority, and other regulatory bodies in line with international operating procedure.

The stock market runs through a mixed performance during the week, leading from sharp disagreement between the bullish and bearish investors over market position. Even when the bargain hunters felt it was profit taking time, market received timely patronage from good numbers of bullish investors that finally turn around the market face.

Week on week NSE ASI followed an uptrend; meanwhile, month on month, the downtrend still holds. If the ongoing trend is maintained, then the latter should change soon.

Despite the short pull back within the week, NSE ASI only closed 99.03 points or 0.40% below the opening point. It opened the week with 25,077.73 points and closed at 24,978.70. Market capitalization of listed equities equally closed in the red at N6.12 trillion.

NSE-30 shed 3.97 points same as 0.33% of its opening figure to close at 1,057.82 points. NSE-Banking and NSE-Oil/Gas appreciated by 1.71 points or 0.6% and 5.10 points or 1.54% respectively. Meanwhile; NSE-Food/Beverages and NSE-Insurance dipped by 20.23 points or 2.50% and 1.24 points and 0.75% respectively.

Percentage gainers/losers

40 stocks closed the week above their various opening prices, 43 shed prices and 118 stocks were flats. Price percentage gainers chart were led by Oceanic Bank Plc that gained 25.52% over its opening price, Unity Bank Plc appreciated by 19.39% and Afribank Plc, IHS Nig. Plc, and Ikeja Hotel Plc moved up by 15.33%, 13.73% and 12.88% respectively. Niger Insurance Plc top the price percentage losers’ chart with 12.50% followed by Cadbury Nig. Plc, Skye Bank Plc, Guaranty Trust Bank and Ecobank Plc with 12.12%, 8.04%, 8.02% and 7.94% respectively.

Report on the OTC FGN bonds market

A turnover of 223.6 million units worth N216.47 billion in 1,599 deals was recorded last week, in contrast to a total of 266.9 million units valued at N246.36 billion exchanged in 1,978 deals during the week ended Thursday, October 14, 2010. In terms of turnover/volume, the most active bond was the 10.00% FGN July 2030 with a traded volume of 33.2 million units valued at N27.12 billion in 257 deals. It was immediately followed by 9.92% FGN January 2012 with a traded volume of 30.6 million units valued at N32.01 billion in 297 deals. Fifteen (15) of the available thirty-six (36) FGN Bonds were traded during the week under review compared with sixteen (16) in the preceding week.

Market outlook

Prior to the strong support on the last trading day of the week, the market was already on a short pull back and traders were already setting for sell-off in order to hold cash to position at bottom of the expected pull back. If the market fundamentals remains, then the market may continue on the bullish run from the first trading day of the new week. Nevertheless, traders should once again expect short pull back as bargain hunters may take profit at any prompt signal. Whichever way it is viewed, cautious positioning should be every trader’s watchword.

CORPORATE REPORTS FOR THE WEEK ENDED

Dangote Cement Plc

Dangote Cement Plc emerged from the recent merger between Dangote Cement Plc (DCP), formerly known as Obajana Cement Plc, and Benue Cement Company Plc (BCC). The merger was made possible as result of majority stake held by Dangote Industries Limited (Dangote Group) in the two companies. In a nutshell, DIL interest in DCP and BCC are 99.14% and 74.77% respectively. The post merger Dangote Cement Plc now has an authorized share capital of N10 million, divided into 20 million ordinary shares of 50 kobo each. The merger assumption for BCC’s shareholders states as follow: (1) that every 2 existing shares of BCC prior to the merger becomes 1 share. (2)

That the price of BCC (N67.50) as at the time it was place on technical suspension (prior to the merger) is now multiplied by 2 to give the current price of DCP (N135).

DCP is billed to be listed on Tuesday, October 26, 2010, in simultaneous with its special sales of 100 million ordinary shares of 50 kobo at N135 each.

In readiness for the listing and the special sales offer, the directors of DCP last week reported its unaudited third quarter results for the period ended September 30, 2010. Analysis on the results revealed improved growth over similar period of 2010.

Turnover (TO) grew by 60.53% at N146.56 billion while both PBT and PAT went up by 63.93% at N76.93 billion and 66.82% at N75.30 billion respectively.

Further analysis revealed that Q3 EPS currently stands at 375 kobo resulting to earnings yield of 2.79%. Net profit margin is 51.38%. DCP currently sells at PE multiple of 35.86.

Giving weight to the special sales offer, DCP’s Board of Directors is recommending an interim dividend of N2.00 per share. The closure date is November 17, 2010 while payment date is November 30, 2010.

Wema Bank Plc

The directors of Wema Bank Plc last week reported its unaudited third quarter results for the period ended September 30, 2010. Scorecards showed re-awaking in Wema Bank, with a strong turnaround in the bottom line. Despite improved growth at the bottom line, the report remained mixed, with turnover dipping by 4.75% at N24.09 billion against N25.29 billion in Q3, 2009. Wema Bank’s return from the woods received a boost by PAT growth of 105.5% at N1.64 billion, against loss after tax of N29.73 billion in similar period 2009.

Additional analysis shows that ratios indicators are trickling in positive figures. Q3 EPS stands at 16 kobo, creating an earnings yield of 17%.

At current 93 kobo market price, PE multiple of 5.87 was generated. Stakeholders’ equity (ROE) returned 4% while net profit margin of 6.79% was equally generated. The coast is still gloomy for Wema Bank as it operates with net liability of N43.90 billion.

Sub-Sahara African countries should consider tempering expansionary fiscal policy now that economic recovery is under way across much of the continent, the International Monetary Fund said on Monday.

Earlier this month, the IMF downgraded its 2011 gross domestic product (GDP) growth forecast for the region to 5.5 percent from 5.9 percent previously, but maintained its 5.0 percent prediction for this year.

“The focus of policy needs to shift toward rebuilding the policy buffers that served so well during the crisis,” Antoinette Monsio Sayeh, IMF’s director of the African department, said in a statement.

“In particular, expansionary fiscal policies will need to be tempered to make sure that public finances return to a sustainable path and public debt levels remain manageable.”

The region’s economies proved resilient largely due to sound policies in place before and during the financial crisis, which allowed the countries to use fiscal and monetary policy to dampen adverse effects, Ms Sayeh said.

Many African countries had steady growth, low inflation, sustainable fiscal balances and public debt, and rising foreign exchange reserves.

Some countries cut interest rates, and increased debt and spending levels to mitigate the effects of the crisis.

“Continued fiscal support is likely warranted only in a handful of economies where growth is set to remain below potential and which do not face debt sustainability issues,” the IMF said in its regional economic outlook.

Growth should soon be back close to the high levels seen in the mid-2000s before the crisis, Ms Sayeh said.

CAPITAL FLOWS

The financial crisis left higher unemployment in some countries and fiscal balances deteriorated, particularly in middle-income and oil-exporting countries, she said.

South Africa, for example, lost one million jobs in 2009 when the economy fell into recession.

The IMF warned that because of the fragile nature of the global recovery, risks remain weighted on the downside.

However, rising incomes and investment will keep lifting domestic demand for the remainder of 2010 and the resource-hungry Asian economies are expected to maintain their demand for African exports, the IMF said.

“The risks on the downside are slightly larger than the risks on the upside,” said Roger Nord, a senior adviser for the IMF’s Africa department, referring to the global economy.

“That being said, we see the risk of sliding back into global recession of being very, very small and the reason for that is the strong growth in emerging countries where we expect (2010) growth on average to exceed 7 percent.”

Despite relative stability and gradual return to profit, banks’ third quarter results show that they are still reluctant to expand their asset creation in respect to loan grants, especially to the private sector.

“An analysis of the key parameters on the balance sheet shows that UBA total assets remained relatively flat, declining marginally by 0.4 percent,” Afrinvest, an investment banking and research firm, said.

“We also observed a decline in the bank’s lending activities in quarter three. The bank’s loan portfolio was subsequently down by 4.2 percent to N636.2 billion, from the N664.2 billion reported in quarter two 2010,” the firm added.

“The bank’s inability to grow its loan book during the quarter led to a slow growth in net interest income. The Q3 net interest income of N27.1 billion falls short of an average of N33.9 billion reported in Q1 and Q2. We expect the bank to be more aggressive in its risk generation appetite and also channel more of its assets into higher income earning assets.

“Currently, 24.2 percent (N402.5 billion) of the bank’s total assets are placed in the inter-bank market where yields were an average of 7.9 percent during the quarter,” the firm further said.

Guaranty Trust Bank’s third quarter result, however, reveals that loans and advances to customers increased to N545 billion, from N532 billion at the end of quarter two, 2010.

Central Bank’s policy not reflecting

Samir Gadio, emerging Markets Strategist, Standard Bank, said the Central Bank’s accommodative policy stance between 2009 and September 2010 has not really reflected in lending to the real sector.

“According to the Central Bank, the growth rate in credit to the private sector fell to a record low of 4.5 percent year on year (y/y ) in August, from 9.8 percent y/y in July and 18.1 percent y/y in June. Although aggregate private sector credit extension edged up 2.0 percent in monthly terms to N10.1trillion, from N9.9 trillion in July, it has only increased 0.4 percent year to date (Ytd).

“This means the Central Bank’s accommodative policy stance between 2009 and September 2010 has not resulted in a turnaround in lending to the real economy, which we think reflects the intrinsic weakness of the monetary transmission mechanism, amid structural issues in the banking system,” Mr. Gadio said.

Experts have said the tightening in monetary conditions during the last Monetary Policy Committee, held in September, is likely to further impact credit dynamics as the Central Bank hiked the standing deposit facility by 225 basis points (bpts) to 3.25 percent. This, they say, may curtail liquidity and place upward pressure on money market rates.

However, a source at Spring Bank said the bank’s lending is fast improving.

“I can’t speak for other banks, but I know Spring Bank is lending. Even if you want a loan, just come to the bank and get a form. Once you meet with the basic requirements, why won’t you get a loan?” he said.