AMCON’s N1tn Bond Redemption to Boost Market Liquidity

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As the Asset Management Corporation of Nigeria (AMCON) redeems its N1 trillion series one, two, three and four bonds today, the liquidity position at the interbank market is being expected to be strengthened.

AMCON had given holders of the fixed income instrument the option to decide if they wanted to be paid in cash or treasury bills. The move was to make sure that the exercise does not distort the financial system, by ushering excess liquidity in the market

AMCON bonds are held between the Central Bank of Nigeria (CBN) and other institutional investors such as pension fund administrators (PFAs), insurance companies and asset managers and banks. But at the end of the exercise, the CBN would be the only creditor to AMCON.

In addition to the redemption of the AMCON bonds, treasury bills worth N77 billion expected to be redeemed via Open Market Operations (OMO) on Thursday would further boost the level of liquidity in the system.

The maturing bills would consist of 69-day bills worth N26.76 billion, and 171-day bills worth N50.23 billion.

A total of N53.38 billion matured treasury bills which comprised of 91-day bills worth N31.84 billion; and 182-day bills worth N21.54 billion, hit the financial system last Friday. The Central Bank of Nigeria (CBN) did not issue any treasury bills last week.

Therefore, upon resumption from a two-day public holidays (Wednesday and Thursday), the Nigerian Interbank Offered Rates (NIBOR) moderated for most tenors on the back of matured treasury bills.

For instance, data from the FMDQ OTC showed that while the Overnight (Call) maintained its position of 10.79 per cent as Friday, the 7-day tenor increased from 11 per cent the preceding Friday, to 11.08 per cent last Friday. But while the 30-day tenor reduced slightly to 11.33 per cent on Friday, compared to the 11.83 per cent it was the preceding Friday, the 60-day tenor also moderated to 11.58 per cent, from 11.83 per cent.

Also, the 90-day, 180-day and 365-day tenors all closed lower at 11.83 per cent, 12.08 per cent and 12.50 per cent respectively.

Speaking recently at the signing of an agreement between the CBN and AMCON to pave the way for the redemption of the AMCON bond, the CBN Governor, Mallam Sanusi Lamido Sanusi, had said that an additional N1 trillion would be provided by the corporation by October next year to redeem the series five bonds.

The CBN governor had said: “The N5.7 trillion includes interest component; the amount AMCON owes is N3.8 trillion. Some of the money will come from the sale of the underlying assets by AMCON. We are at a point where AMCON balance sheet has enabled them raise enough money to pay for this bond," adding that "Out of the N5.7 trillion worth of AMCON bond, on December 30th, AMCON is going to cancel by paying off N1trillion series one, two, three and four bond of all institutions that is held outside the central bank."

The CBN governor also disclosed that in October next year, AMCON will further write off another N1 trillion, which is series five held by bank and other institutions.

Commenting on the planned redemption of the AMCON bonds, analysts at Cowry Asset Management Limited anticipated that in addition, to maturing AMCON bonds, interest rates would decrease at the interbank market amidst the boost in system liquidity. However, treasury bills’ rates have been predicted to decline as a result of the AMCON bonds redemption.

Analysts at Cordros Capital Limited that gave this indication said they expected lower yields going forward in the shorter term given the fact that AMCON would redeem part of the funds in treasury bills.

“We expect short term rates to edge lower because AMCON has indicated its intent to redeem about N2 trillion worth of bonds with T-bills rather than cash. And these T-bills are expected to be issued below current market rates. Also, a high volume of open market operations (OMO) redemptions are expected to hit the market in December and January. This is also likely to push rates down,” they stated in a report.

RTGS Glitches Disrupt Bond Market

The secondary market of the bond market witnessed mild activities as most traders refrained from trading due to settlement challenges occasioned by changes being implemented on the Real-time Gross Settlement (RTGS) system by the CBN.

A report by Cowry Assets Management which disclosed this, said it led to stability in bond prices (and their respective yields) on a week-on-week basis for all maturities tracked.

Meanwhile, the 7-year 11.99% FGN Dec 2013 bond worth N10 billion was redeemed by the Debt Management Office (DMO).

“This week, we expect the over-the-counter (OTC) market to resume activities as the RTGS hitches are fixed and investors return to the market after the Christmas and New Year Holidays.

“With the redemption of AMCON bonds and the attendant boost in system liquidity, we predict increases in bond prices,” it added.

Forex Market

The Retail Dutch Auction System (RDAS), the official foreign exchange window was closed last week as a result of the yuletide celebration. The naira weakened at the interbank market by 64 kobo to N159.96 to a dollar, while it maintained its value of N173 to a dollar at the parallel market.

Trading against other major currencies, the nation’s currency depreciated against the Pound and Euro by N4.39 and N3.75 to close at N264.71 and N221.49 respectively.

This week, analysts forecast sustained quiet in the official foreign exchange market, even as they anticipate pressure at the parallel market as demand shifts to the black market.

Revocation of BDC Licences

The Senate last week requested the CBN governor to forward a detailed report on the circumstances that led to the cancellation of the licences of 20 bureaux de change (BDC). The demand was preparatory to conducting an investigation into the circumstances that led to the cancellation of the licences.

> In a letter to Sanusi, dated November 13 and signed by the Chairman of the Senate Committee on Banking, Insurance and other Financial Institution, Bassey Edet Otu, the Upper legislative chamber had expressed concern over the revocation of the licences of the bureaux de change and particularly, the revocation of the licence of the one owned by First Bank of Nigeria (FBN).

Duty Waivers

The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala last week described a report by an online medium that the First Lady, Mrs. Patience Jonathan, received import waivers which she later turned over to Coscharis Motors as “a false exclusive based on distorted information.”

A statement from the Special Adviser to the minister Mr. Paul Nwabuikwu had explained that the revised waivers policy replaced the old regime of individual waivers with the objective of boosting key sectors such as agriculture, power, gas and mines/steel.

> Furthermore, it explained that the strategy was to deploy waivers as a stronger tool of economic development, adding that part of the information published by the Federal Ministry of Finance was a list of state governments, private sector organisations and other institutions, which were granted waivers to bring in vehicles for various events including sports festivals, conferences and workshops. This practice, it stressed, did not begin with the Jonathan administration.