FLOURMILL CP Available; T-Bills Secondary Market Witness Bullish Run on Buoyant Liquidity

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Monday, April 20, 2020 /02:05 PM / Afrinvest Research / Header Image Credit: Livemint

 

Last week's 4-day trading session started on a quiet note as investors remained on the sidelines in anticipation of the Primary Market Auction ("PMA") scheduled for Wednesday. However, there was an uptick in demand on Thursday as a result of buoyant system liquidity (c. N600.0bn long) as well as investors with lost bids at the auction (N76.5bn) cherry picking instruments across the curve.


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As a result, average yield across all instruments shed 24bps W-o-W to close at 3.1% on Friday following pockets of demand at the medium and long ends of the curve particularly the 1-Oct-20 (-166bps), 17-Sep-20 (-99bps) and 14-Jan-21 (-65bps) maturities.

 

At the PMA on Wednesday, the Apex bank offered a total of N58.4bn across the 91-day (N5.8bn), 182-day (N3.5bn) and 364 day (N49.1bn) instruments. In line with recent trends, subscription levels were higher, especially for the mid-dated instrument at 3.6x while the short and long term instruments were oversubscribed by 2.3x and 2.2x respectively. Consequently, stop rates across the short, medium and long term bills closed lower at 1.93%, 2.74% and 4.00% respectively.

 

Please see detailed PMA results below:

Auction Date

15-Apr-20

15-Apr-20

15-Apr-20

Allotment / Issue Date

16-Apr-20

16-Apr-20

16-Apr-20

Tenor

(91-Day)

(182-Day)

(364-Day)

Offer Amount (N)

5,849,034,000

3,500,000,000

49,141,302,000

Total Subscription(N)

13,102,832,000

12,555,929,000

109,386,046,000

Allotment (N)

5,849,034,000

3,500,000,000

49,141,302,000

Range of Bid Rates (%):

1.0000 - 3.8803

2.6000 - 4.1100

3.0000- 13.7800

Stop Rates (%):

1.9300

2.7400

4.0000

Previous Stop Rates (%):

2.3000

3.4000

4.6000

Bid-to-Cover Ratio:

2.3x

3.6x

2.2x

Allotment Ratio

0.4x

   

0.3x

   

0.5x

   

 

In its customary action, the CBN conducted an Open Market Operation ("OMO") on Thursday to mop up excess system liquidity with N100.0bn worth of instruments on offer across three maturities. In contrast to last week's auction where there was no subscription nor sale at the short and mid-end, the auction recorded high subscription levels at 3.2x, 3.6x and 1.1x for the 82-day, 166-day and 334-day instruments respectively. Subsequently, the apex bank sold instruments worth N134.0bn at marginal rates of 11.5%, 11.54% and 12.75% for the short, medium and long term instruments respectively.

 

Please see indicative secondary market NT-Bills rates below:

Maturity

Tenor (Days)

Rate (%) p.a.

Yield (%) p.a.

18-Jun-20

59

2.20

2.21

13-Aug-20

115

3.20

3.23

26-Nov-20

220

4.00

4.10

14-Jan-21

269

4.10

4.23

11-Feb-21

297

4.40

4.56

Rates are valid till 01:45pm today (20-Apr-2020)

*Please note that the minimum subscription for T-Bills is N100, 000.00

 

Expectations for the week: On Thursday, we anticipate inflows from maturing OMO instruments worth N267.7bn. In addition to cherry picking instruments across the NT-Bills secondary market, our recommendation is for investors to seek more attractive alternatives such as the Flour Mills of Nigeria Plc commercial paper alongside other potential money market offerings that might be announced.


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Flour Mills of Nigeria PLC Commercial Paper 

Issuer

Flour Mills of Nigeria  PLC

Size

Up to N30.0 billion across both tenors

Series

13

14

Tenor 

182-Days

269-Days

Effective Yield (%)

6.7500

7.7499

Discount Rate (%)

6.5308

6.9584

Issuer Rating (Short term)

A2 (GCR)

Issuer Rating (Long term)

BBB+ (GCR)

Subscription

Minimum of N5.0 million and multiples of N1,000 thereafter

Tax Considerations

Free and clear of withholding taxes

Offer Open Date

Thursday, 16 April 2020

Offer Close/Allotment Date

Friday, 24 April 2020

Settlement Date

Monday, 27 April 2020

Offer valid till 9:00am on Friday (24-Apr-20)

*Please note that the minimum subscription for the Commercial Paper is N5,000,000.00

 

FGN Bonds Market Update: Debt Management Office Set to raise N60.0bn at April Bond Auction; Bullish Run Sustained as Average Yield Declines 30bps W-o-W

In line with the Treasury Bills market, the FGN bond market started off on a quiet note last week. Activities picked up by Wednesday and Thursday as trickles of demand filtered into the market particularly at the short and medium term segments of the curve. By the end of the week, average yield across all instruments declined by 30bps W-o-W to close at 11.0%.

 

Buying interests were witnessed on bonds with TTM of less than 6 years particularly the 2026 (-89bps), 2022 (-77bps) and 2021 (-76bps) instruments. The Debt Management Office ("DMO") on behalf of the Federal Government announced its plan to raise N60.0bn at the bond auction slated for Wednesday.

 

Please see details of the auction below:

Bonds

12.75% FGN APR 2023

12.50% FGN MAR 2035

12.98% FGN MAR 2050

(Re-opening)

(Re-opening)

(Re-opening)

Term-To-Maturity

3 Years

14 Years, 11 months

29 Years, 11 months

Offer Amount (N)

20,000,000,000

20,000,000,000

20,000,000,000

Previous Stop Rates

10.00%

12.50%

12.98%

 

We anticipate a quiet trading session at the beginning of the week as investors prepare to position for the bond PMA. Given the supply at this month's auction (N60.0bn) relative to liquidity levels, we expect to see a high level of demand across all instruments.

Investors are advised to cherry pick instruments in the FGN bonds market with attractive yields and trading at a discount or close to par value in addition to alternative options such as corporate bond issuances.

 

Please see indicative secondary market bond rates below:

Bond

Tenor (Years)

Yield (%)

Coupon (%)

Implied Price (N)

Jul-21

2

             4.60

             14.50

                   111.75

Jan-22

3

             5.45

             16.39

                   118.19

Apr-23

4

             8.35

             12.75

                   111.52

Mar-24

5

             8.30

             14.20

                   119.29

Mar-25

6

             9.40

             13.53

                   115.96

Jan-26

7

             9.80

             12.50

                   111.63

Mar-27

8

           11.54

             16.29

                   122.15

Feb-28

9

           10.80

             13.98

                   116.50

Jul-34

15

           11.60

             12.15

                   103.74

Mar-36

17

           11.15

             12.40

                   109.19

Apr-37

18

           11.25

             16.25

                   137.52

Apr-49

30

             11.70

             14.80

                   125.51

Rates are valid till 01:45pm today (20-Apr-2020)

*Please note that the minimum subscription for Bonds is N20, 000,000.00

 

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