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…as Investors get jittery

INVESTORS in the financial and energy sectors are finding it increasingly hard to get hold of foreign currency to repay their debt due to the Central Bank of Nigeria restrictions as well as the cash crunch occasioned by FG’s monetary policies.
Keen watchers of the unfolding scenario argued that the restrictions have substantially reduced market liquidity irrespective of whatever argument government may have put up.
Another contributing issue to the frustration being faced by investors was JP Morgan delisting of Nigeria from its influential Emerging Markets Bond Index due to a lack of liquidity and the currency restrictions a move that might prompt more capital outflows and increase costs to borrow abroad.
Removal from the index would force funds tracking it to sell Nigerian bonds from their portfolios, potentially resulting in significant capital outflows, experts argued, adding that the decision by JP Morgan’s decision would raise borrowing costs for Nigeria.
They opined that the two measures introduced by the apex to curb speculation on the Naira- the ban on banks from holding any of their own money in dollars and the pronouncement that dollars bought from the interbank could only be held for up 48 hours are responsible for the financial crisis.
Plunging oil revenues, which make up 70% of government income and 90% of foreign currency earnings, have hit public finances and Nigeria’s currency. The naira has lost around 15% in the past year.
At a forum in Abuja, Deputy Governor of the Central Bank of Nigeria (CBN) in charge of economic policy, Mrs. Sarah Alade, dismissed the insinuations that the action of JPMorgan would lead to collapse of the Nigerian banks. She said the various economic policies already put in place by the apex bank to supervise and monitor banks in the country would prevent the financial institutions from collapse.
Similarly, CBN deputy governor who spoke through a director in the bank, Mr. Emmanuel Ukeje, explained that the JPMorgan was just an international bank whose action cannot in anyway spell doom for the country with its removal of Nigeria from the index. She disclosed that the international bank felt angry with Nigeria when the authorities refused to succumb to its recommendation that the country’s currency, the naira, be further devalued.
Apart from her point that the JPMorgan’s delisting of Nigeria’s bonds would not adversely affect the banks, Alade also hinted that the foreign investors would not suffer any setback in their investment in the country.
Companies across board have started feeling the dollar shortage due to restrictions imposed by the central bank to halt the naira’s fall and preserve its foreign currency reserves.
According to Ecobank’s head of economic research, Angus Downie, if the oil price does not rise soon for some companies that have borrowed in dollars, they will struggle to make payments and the end result would be that they would have to default.
Foreign bond and equity investors are also fretting over a policy vacuum as Nigeria is yet to constitute its cabinet or economic team.
Reacting to these critical issues, CBN’s Governor Godwin Emefiele denied any shortage of liquidity in the currency market, adding that JP Morgan’s reason for putting the status of its bonds was uncalled for. “We are very surprised by this action by the JP Morgan team; owing to perceived lack of liquidity … We are pretty certain that the liquidity in the market right now is adequate for the volume of trading,” he said.
According to him, the apex bank wants to avoid speculators. And the decision will not hurt true dealers and true investors in the market because if there’s any foreign or local investor that wants liquidity, the CBN can provide it.
He added that he was confident the Nigerian naira would adjust within the bank’s target band of 5 percent plus or minus 168 to the dollar.”It’s a question of time. It will come back within the band.”
Nigeria officially devalued its currency by 8 percent last month against the dollar, but not many analysts believe even the new level can hold, given the dwindling state oil revenues and declining reserves.
Since 2007, Nigerian financial and energy firms such as FBN Holdings and Seven Energy have issued more than $5billion of dollar-denominated debt on international capital markets, including almost $3billion in Eurobonds since the start of 2014, according to a report by Reuters.
However, introduction of the Treasury Single Account (TSA) which has mopped up about N1.2trn belonging to the Federal Government from all commercial banks in the country, as well the reduction of crude benchmark to below $50 a barrel is compounding the issue for the investors.

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