Inflation: T-bills 8% return fails to shield investors

Fixed-income investors seeking high-yielding securities were not disappointed in the first quarter of 2021 as the rates on the T-bills 364-day Federal Government short-term debt instruments rose to 8 percent from 1.5 percent at the beginning of the quarter.

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But with Nigeria’ s 17.33 inflation rate in February, the real return on the 364-day government less risky treasury bill is -9.33 percent.

After hitting a four-year low of near-zero percent in 2020, yields on the Federal Government risk-free treasury bills climbed to more than 15- month high in the three months ended March 2021.

Weeks after the Central Bank of Nigeria (CBN) shocked the market with a 10.10 percent stop rate for the 362-day Open Market Operation (OMO) bill, the highest levels seen in almost a year, fixed-income investors demanded higher rates for T-bills.

“The increase in the stop rates can be linked to the hike in CBN OMO rates some weeks ago. Investors are bidding at higher rates and the Debt Management Office (DMO) also needs to raise the cut off rate to fill some of the orders,” Ayodeji Ebo, head, retail investment, Chapel Hill Denham, said.

According to the T-bills auction result for March 31, 2021, investors bid at a rate as high as 8 percent for the 91-day bill, 9 percent and 11 percent for the 182-day and 364-day bills, respectively, but CBN settled at 2 percent, 3.5 percent and 8 percent, respectively. The stop rates for the 91-day and 182-day bills stayed flat but the 364-day bill increased by 100 basis points compared to the result of the previous auction.

Investors showed less interest in the shorter 91-day and 182-day bills as they attracted a lower interest rate but were willing to subscribe to the longer 364-day bill which rose by 100bps to 8 percent interest rate.

While CBN planned to raise N10 billion for the shorter 91-day bill, investors subscribed with N570 million less. The apex bank was eventually able to allot N2.88 billion, almost four times less than its initial offer.

Investors’ bid for the 182-day bill was the same. While the CBN offered N17.6 billion worth of treasury bills, investors said they were willing to invest N12.74 billion. The apex bank raised N3.24 billion.

The 364-day bill was, however, oversubscribed by N51.72 billion. The CBN initially offered N68.08 billion but after investors said they were willing to invest N190.43 billion, the apex bank increased its allotment to N138.71 billion.

The recent uptick in T-bills rate to more than one year-high is good news for fixed income investors as their real return on investment which appreciated to -9.33 percent in March is much better than the -13.89 percent report in November 2020 when investors were more concerned about losing their capital than return on investment.

Even though a BusinessDay poll of five market analysts expect the rates on the less risky government Nigerian treasury bills to reach 9 percent before the end of June this year, the country’s inflation rate which is expected to maintain an upward trend possess a threat to investors real return.

Despite a 15-month high uptick in the yields on Federal Government risk-free instruments, fixed-income investors are earning negative returns in real terms due to inflation rate which accelerated to a 48-month high in February 2021.

Nigeria’s rising cost of goods and services with no relief insight puts local investors in government instrument at a disadvantage when compared to their African peers.

With 13.26 percent T-bill rates in Ghana and 9.213 percent in Kenya, fixed-income investors in both countries are enjoying a real return of 2.96 percent and 3.41 percent, respectively. February inflation in the West African country and East Africa’s largest economy stood at 10.3 percent and 5.8 percent, respectively.

Interest rates in Nigeria have always been high due to the monetary system since 2009 which sought to use FGN bonds/T-bills and OMO bills as a means of attracting US dollars into the country to stabilise the naira. But October 23, 2019, OMO policy by the Central Bank which prevents domestic investors from participating in the auction, drove rates to its record low levels.

From October 23, 2019, the apex bank banned non-bank locals (individuals and corporates) from participating in OMO auction at both the primary and secondary market. The CBN’s policy is largely in line with its drive to divert liquidity away from risk-free instruments to the real sector.

Treasury bills are short-term sovereign debt securities maturing in one year or less. They are sold at a discount and redeemed at par.


Eko Atlantic Investment

Here’s why investment-interest in Eko Atlantic is high despite economic slowdown, land price

At a time when many developments are struggling to get off ground as a result of Covid-19 impact and general slowdown in economy, investment interest in Eko Atlantic City in Lagos remains high.

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This interest is not affected either by the high land price in the city which is way ahead of what obtains in adjoining highbrow neighbourhoods such as Old Ikoyi, Victoria Island and Lekki Phase 1, meaning that the city has values and attractions that investors find too hard to resist.

Sitting on 10 million square meters of land reclaimed from the Atlantic Ocean, Eko Atlantic is Nigeria’s most ambitious new city located adjacent to Victoria Island in Lagos. It is planned to be a self-sustaining city that will be home to 300,000 residents with 250,000 others expected to work in the city.

The city is protected from ocean surge or other adverse environmental issues by a sea wall known as Great Wall of Lagos, measuring nine metres above sea level, 85 kilometres long and 46 kilometres wide.

Right from inception, investors have shown interest in the project and confidence in the developers, South Energyx Nigeria, and their ability to deliver a world class city.

“More people are beginning to recognise that the project is for the future and would become one of the major cities in the world,” David Frame, managing director of South Energyx, noted during a tour of the project recently.

This, more than anything else, explains why investors have continued to flock to the city.

Though the price of land in the city is a guarded secret, a source close to the firm’s marketing department says a square metre of land in the city goes for well above $1,000 mark, depending on location.

This contrasts with prices in Old Ikoyi which, according to a Northcourt market report, sold for N436,667 and N415,000 per square metre in 2019 and 2020 respectively.

In Victoria Island, the report says land sold for N351, 912 and N330,000 per square metre in 2019 and 2020 respectively, while Lekki land sold for N184,361 and N198,000 per square metre in 2019 and 2020 respectively.

In spite of this price differential, about 70 per cent of land in phases one and two of Eko Atlantic has been sold out, according to Frame.

Also, 50 per cent of the reclaimed areas in phases 1, II and II1 have infrastructure such as road, bridges, streetlights, wastewater treatment plants, sewage, and canals.

This shows the unimaginable level to which good infrastructure can drive demand in real estate.

It draws yield-hungry investors like the sweet-smelling nectar draws insects to a flower. Infrastructure is key.

“90 percent of the needed infrastructure in phase 1 has been completed, 70 percent in phase 2 and about 20 percent in phase 3,” the managing director disclosed, adding that phases 4, 5 and 6 of the city were on the way while they were considering starting sand-filling for phase 4 soon.



Investors: How companies can attract funding

As investors gear up to tap from opportunities in Nigeria through investments in the country’s estimated 41.5 million startups, small and medium scale companies in need of growth capital have to be investment-ready to attract funding, according to industry stakeholders.

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Discussing one of the most important aspects of business for most entrepreneurs in Nigeria and Africa – funding, trade and investment stakeholders in a recent webinar organised by the Nigerian-British Chamber of Commerce said businesses should be created based on ‘universal foundation’ or ‘sustainable foundation.’

“Integrity, strong governance and keeping proper records of the business and the ability to leverage on environment impactful initiative are very important,” Bisi Lamikanra, former partner and head of the advisory services, KPMG Nigeria said.

Small and medium-sized enterprises (SMEs) are described by analysts as the bedrock of the Nigerian economy as they account for over 95 percent of all businesses and contribute over 50 percent to the economy.

But hard hit by the double challenge of COVID-19 and slow economic growth, small businesses in Africa’s most populous nation are now more vulnerable as constraints in liquidity and cash flow, coupled with increased payment delays have resulted in endemic depletion of working capital.

With the high cost of accessing bank credit and lack of the much-required collateral, many Nigerian businesses are at the mercy of investors for funding to expand and increase the bottom line, but they also have to be ready to be attractive for investment.

“An investor-ready company just means that such a business is ready for marriage between itself and an investor. So an investor can partner with them and honour the agreement,” Okechukwu Enelamah, chairman, African Capital Alliance (ACA), and former minister of Industry, Trade, and Investment, said.

Meanwhile, companies like Flutterwave and Kuda are some of the startups that raised funding within the first three months of 2021. The former raised $170 million from a Series C fundraising while the latter secured $25 million in a Series A fundraising.


Equities Market

Equities market gains over N100bn as investors buy Zenith, GTBank, others

The record positive seen on Custom Street came as investors realise the equities market offers reentry opportunities for value hunters as prices of most counters hit record lows.

Trading on the floor of the Nigerian Exchange (NGX) Limited closed in green zone on Thursday as investors raised stakes in stocks like Zenith Bank Plc, Eterna Plc, GTBank Plc, Dangote Sugar Refinery Plc and Lasaco Plc.

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The record positive seen on Custom Street came as investors realise the equities market offers reentry opportunities for value hunters as prices of most counters hit record lows.

The All Share Index (ASI) of the Bourse stood higher by 0.54percent to close at 38,914.84 points, from 38,706.13 points recorded the preceding day.

The negative return year-to-date (YtD) stood lower at -3.37percent. This week alone, the equities market has increased by 0.69 percent, while this month it has declined by 2.22 percent.

Also, the value of listed stocks on the Bourse increased by N109billion, from the preceding day high of N20.251trillion to N20.360trillion.

Eterna Plc led the gainers league after its share price moved from N4.62 to N5.08, up by 46percent or 9.96percent.

Lasaco also advanced, from N1.2 to N1.3, up by 10kobo or 8.33 percent. Zenith Bank moved up from preceding day low of N20.5 to N22, up by N1.5 or 7.32percent.

GTBank rose from N28 to N29.8, adding N1.8 or 6.43 percent while Dangote Sugar moved from N16 to N17, up by N1 or 6.25 percent.

Unity Bank, GTBank, Zenith Bank and FBN Holdings were actively traded stocks on the floor of Nigerian Exchange (NGX) Limited. In 4,040 deals, investors exchanged 1,468,421,633 units valued at N5.853billion.


Mobile Money Business

The Rise Fund to Invest $200m in Airtel Africa’s Mobile Money Business at $2.65bn Valuation

Airtel Africa, a leading provider of telecommunications and mobile money services, with a presence in 14 countries across Africa, today announces the signing of an agreement under which The Rise Fund, the global impact investing platform of leading alternative investment firm TPG, will invest $200 million in Airtel Mobile Commerce BV (“AMC BV”), a wholly owned subsidiary of Airtel Africa plc (the “Transaction”). AMC BV is currently the holding company for several of Airtel Africa’s mobile money operations; and is now intended to own and operate the mobile money businesses across all of Airtel Africa’s fourteen operating countries.

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The Transaction values Airtel Africa’s mobile money business at $2.65 billion on a cash and debt free basis.

The Rise Fund will hold a minority stake in AMC BV upon completion of the Transaction, with Airtel Africa continuing to hold the remaining majority stake.

The Transaction is subject to customary closing conditions including necessary regulatory filings and approvals, as necessary, and the inclusion of specified mobile money business assets and contracts into AMC BV.

The Transaction is the latest step in the Group’s pursuit of strategic asset monetization and investment opportunities, and it is the aim of Airtel Africa to explore the potential listing of the mobile money business within four years.

The Group is in discussions with other potential investors in relation to possible further minority investments into Airtel Money, up to a total of 25% of the issued share capital of AMC BV.

There can be no certainty that a transaction will be concluded or as to the final terms of any transactions.

The proceeds from the Transaction will be used to reduce Group debt and invest in network and sales infrastructure in the respective operating countries.

Airtel Africa Mobile Money Services

Operating under the Airtel Money brand, Airtel Africa’s mobile money services is a leading digital mobile financial services platform catering to a large addressable market in Africa (characterised by limited access to formal financial institutions with limited banking infrastructure) and includes mobile wallet deposit and withdrawals, merchant and commercial payments, benefits transfers, loans and savings, virtual credit card and international money transfers.

Mobile money services are available across the Group’s 14 countries of operation, however in Nigeria the Group offers Airtel Money services through a partnership with a local bank and has applied for its own mobile banking licence.

It is the intention that all mobile money operations will be owned and operated by AMC BV.

In our most recent reported results for Q3, the mobile money service segment (corresponding to all the businesses that are intended to be transferred to AMC BV) delivered a strong operational performance:

  • Generated revenue of $110 million ($440 million annualised), and underlying EBITDA of $54 million ($216 million annualised) at a margin of 48.7%.
  • Year on year revenue growth for the quarter was 41.1% in constant currency, largely driven by 29% growth in the customer base to 21.5 million, and 9.7% ARPU growth.
  • Growth in transaction value was 53.0% to $12.8 billion ($51 billion annualised).

Our mobile money business benefits from strong network presence with our core telecom business through the extensive distribution platform of kiosks and mini shops as well as dedicated Airtel Money branches supplementing our extensive agent network, to facilitate customers’ assured wallet and cash.

We have a clear strategy to continue to drive sustainable long-term growth in Airtel Money with a focus on assured float availability, distribution expansion and increased usage cases for our customers.

In this year alone we have added partnerships with Mastercard, Samsung, Asante, Standard Chartered Bank, MoneyGram, Mukuru and WorldRemit to expand both the range and depth of the Airtel Money offerings and to further drive customer growth and penetration.

The profits before tax in the full year ending 31 March 2020 and the value of gross assets as of that date, attributable to the mobile money businesses were $143.4 million and $463.2 million, respectively.

Key Elements of the Transaction

  • Agreement values Airtel Africa’s mobile money business at $2.65 billion on a cash and debt free basis.
  • AMC BV, a wholly owned subsidiary of Airtel Africa, is currently the holding company for several of Airtel Africa’s mobile money operations; and is now intended to own and operate the mobile money businesses across all of Airtel Africa’s fourteen operating countries once the inclusion of the remaining mobile money operations under AMC BV is completed.
  • A newly incorporated investment vehicle of The Rise Fund will invest $200 million through a secondary purchase of shares in AMC BV from Airtel Africa. The transaction will close in two stages. $150 million will be invested at first close, once the transfer of sufficient mobile money operations and contracts into AMC BV has been completed, with $50 million to be invested at second close upon further transfers.
  • Airtel Africa aims to explore the potential listing of the mobile money business within four years. Under the terms of the Transaction, and in very limited circumstances (in the event that there is no Initial Public Offering of shares in AMC BV within four years of first close, or in the event of changes of control without TPG’s prior approval), TPG would have the option, so as to provide liquidity to them, to sell its shares in AMC BV to Airtel Africa or its affiliates at fair market value (determined by a mutually agreed merchant bank using an agreed internationally accepted valuation methodology). The option is subject to a minimum price equal to the consideration paid by The Rise Fund for its investment (less the value of all distributions and any proceeds of sale of its shares, and with no time value of money or minimum return built in) and a maximum number of shares in AMC BV such that the consideration does not exceed $400 million.

The Transaction is expected to reach first close over the next three to four months. From first close The Rise Fund will be entitled to appoint a director to the board of AMC BV and to certain customary information and minority protection rights.


Diaspora Investment

Nigeria to reward every diaspora dollar inflow with N5

Nigeria will reward every diaspora dollar inflow with five Naira additional payment as the country seeks to maximise foreign exchange flows from its citizens abroad.

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According to a statement by the central bank, recipients of diaspora flows who use formal channels to get U.S. dollars from abroad, will be paid N5 fir every dollar received and this will be on top of proceeds of the cash sent.

It is the latest move by authorities to increase the flow of remittances amid a shortage of hard currency.

Recipients will get 5 naira for every $1 they remit through licensed international money transfer operators and commercial banks, the central bank said.

The program will run from March 8 till May 8.

The West African nation’s currency has been devalued twice since March last year after a sharp drop in oil sales and remittances from workers abroad led to a shortage of dollars.

Measures by the central bank to bolster inflows and a rebound in oil prices could reduce pressure on the currency, which last traded at 411 per dollar at the exchange platform for investors and exporters known as Nafex.


Stock Exchange

Stocks shed N245bn: Investors go for attractive yields

Investors in Nigeria’s equities market became worse off in the trading week ended March 5 after booking about N245billion loss as funds moved out of equities due to impressive yields in the fixed income (FI) market.

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Investors are now battling with the decision to either buy into the recent dip or to stay out of the market pending when there are major positives capable of reversing the negative trend.

The market disappointed despite significant increase in prices of crude oil –Nigeria’s major source of dollar revenue, coupled with the attractive dividend yields of a number of dividend-paying counters.

The Nigerian Stock Exchange (NSE) All-Share Index (ASI) and Market Capitalisation moved from week-open highs of 39,799.89 points and N20.823 trillion respectively to close the review week at 39,331.61 points and N20.578trillion.

The NSE ASI closed negative in four out of the five-day trading week, causing the benchmark performance indicator of the Bourse to decrease by 1.18percent week-on-week (WoW).

This negative was fueled mostly by remarkable losses in consumer goods, insurance and oil & gas stocks as evidenced in their sectoral indices.

NSE-30 Index which tracks the top 30 companies in terms of market capitalisation and liquidity decreased by 1.46percent in the review trading week.

Except NSE Industrial index which rose by 1.39percent, other sectoral indices closed in red –NSE Consumer goods index (-6.30percent), NSE Insurance index (-4.99percent), NSE Oil & Gas (-2.16percent), NSE Pension (-2.83percent), and NSE Banking (-1.94percent).

The stock market of Africa’s largest economy had bullish run in 2020 with a record-breaking return of +50percent amid unattractive yields in the fixed income space, placing it as world’s best.

Likewise, the market kicked off 2021 with similar trend, gaining 5.3percent in January, but since February (-5.6percent) it has maintained a southward direction. As at close of trading on Friday, the market has lost 2.33percent of its year-open value.


Capital Investment

Do Startups Need Venture Capital Investment?

Venture capital investment refers to a type of private equity investment in which investors provide capital and mentorship in a startup that is still in its development phase in exchange for equity in the company.

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The rise in venture capital investments in Nigerian startups depicts how the investment process in companies has evolved. Before now, companies heavily relied on funds from commercial banks to run their business activities.

Sadly, this comes with a lot of unfavourable conditions such as high-interest rates on loans, banks demand for collateral and the pressure on companies to pay up the loan.

Thus, startups often opt for venture capital firms which often render financial, managerial, and technical assistance needed to build tech products and scale their operations.

In a report published by Techpoint Africa, Nigerian startups received 86.3% of over $1.8 billion venture funds that were contributed to “West African Millionaire Startups” within 2010 and 2019.

According to the 2020 Africa Tech Venture Capital Report, Nigeria remains the number one hub for venture capital investment in Africa as Nigerian startups raised a total of $307 million in 2020.

It suffices to mention that this report only covers Venture capital deals that worth over $200,000. Though some may belittle the amount of these funds and the number of companies targeted by comparing it to the amount being raised by startups in developed nations, Nigeria has come a bit far with fund raising.

These venture capital investments in Nigerian startups are a form of impact investment. Asides from generating financial returns on these deals, research shows that investments from venture capital companies tend to bring about a measurable social impact in the country. Most startups in the country focus on solving trivial problems with innovation. These solutions range from education (Andela, Utiva, ulesson), funding of agricultural production (ThriveAgric, FarmCrowdy), wealth management (Piggy Vest, Cowrywise), online payment solutions (Paystack and Flutterwave), healthcare (54gene, Lifebank, Helium Health) amongst others. More startups emerge every year all in a bid to solve a particular problem Nigerians are embattled with. For these startups to realize their potentials, they will need funds to scale their operations. Thus, funds gotten from venture capital firms contribute a great deal in helping these companies innovate their product and kickstart their operation.

Venture capital firms also provide funds for startups to invest in branding and marketing of their products. In the words of Tara Nicholle Nelson, “you cannot buy engagement, you have to build engagement.” Thus, building a product is not enough. Startups do engage in implementing a lot of marketing strategies for user acquisition, engagement, and retention. This requires a lot of funds which most tech entrepreneurs do not have. This is more difficult to do in a market like Nigeria which is reported to have a population of over 200 million people. Thus, making the product a well-known brand and preserving the same, costs a fortune and also requires establishing partnerships with stakeholders in key areas. These are issues venture capital firms can help with as they have the right resources and network.

Additionally, companies that have received funding in the past through venture capital investment are equipped with the means to expand their operations and create new market opportunities for their product. Subsequent funding received by startups also confers a form of goodwill in terms of financial capabilities and human capital which is often needed to expand operations and improve their technological innovation.

Thus, it is no doubt that Nigerian startups stand a lot to benefit from the investment opportunities, mentorship and the network, venture capital firms do offer. Sadly, most of these investments are foreign venture capital funds. However, the recent efforts of companies like Future Africa through the Future Africa Collective and Co-Creation Hub through the CcHub Syndicate programme must be commended as these are innovative funding models through which more tech startups can be backed. Though there is the need for more venture capital investments in Nigerian tech startups as techpreneurs in Nigeria never stop to serve their fatherland with all their talents and hard work in a bid to fix the deep-lying issues that are affecting the various sectors of the Nigerian economy.

Would it not then be a smart decision for more high-net-worth individuals and enterprises within the country to invest in these innovative ideas? Would it not then be right for the Nigerian Government to create more strategic policies and enable the environment to attract more funding in the tech ecosystem? These are the multimillion-dollar questions that demand attention.