A herd of finance and economic experts have warned that the recent action by JP Morgan which saw Nigeria delisted and removed from “Emerging Market” index may be followed after by other global banks.
“Sadly our bonds will attract less investors and the cost of financing international transactions will be higher,” a financial analyst, Kalu Aja, stated.
JP Morgan is one of the largest banks in the world.They maintain a list of “recommended” bonds for investors.
Nigeria was added because high oil prices made the country’s GDP go up. NNPC not remitting dollars led to striking out of Nigeria.
“Most buying is done by institutions like pension funds.They benchmark via an index. If NNPC, pension fund wants to buy emerging bonds, it buys all bonds on JP Morgan emerging bond index
“If Nigeria bonds are in the bond index, they get bought by default, i.e, they borrow cheaply,” Aja explained in one of his tweets.
Cordros Research analysts, in an emailed note, said Foreign Portfolio Investors (FPIs) who have exhibited a lackluster interest in domestic equities are likely to remain on the sidelines due to sustained foreign exchange (FX) liquidity challenges and interest rate hikes by Central Banks in advanced countries.
According to the Domestic and Foreign Portfolio Investment Report of Nigerian Exchange Limited, the total foreign transactions decreased by 7.17 per cent from N45.43 billion (about $109.30 million) to N42.17billion (about $101.36 million) between February and March 2022.
Cordros Research, while citing the impact of FX liquidity constraints in the economy, said that the total transaction value at the NGX stood at N692.10 billion in Q1 2022 as against N676.53 billion in Q1 2021.
The decision of JP Morgan to warn investors interested in buying securities from Nigeria to be extraordinarily careful is not going down well with some other observers, who blamed the Federal Government for this.
According to the financial institution, it had to downgrade Nigeria, which prides itself as the biggest economy in Africa, from its emerging market sovereign list because the Nigerian National Petroleum Company (NNPC) Limited has not been able to transfer revenue generated from the sale of crude oil to the federation account for three months.
JP Morgan believes the country is undergoing a serious revenue crisis that could affect its ability to pay foreign bondholders, which is why it is alerting investors to probably avoid Nigerian bonds as the government plans to approach the market soon.
“Nigeria’s fiscal woes amid a worsening global risk backdrop have raised market concerns despite a positive oil environment,” the American bank said.
The NNPC has struggled to remit funds to the Federal Government between January and March 2022 as a result of the payment of subsidies for petrol.
Though Nigeria has crude oil in abundance, it does not refine the commodity. It instead gives the crude oil to refiners and then brings the derivatives into the country, making it difficult for consumers to buy at cheaper rates except the government subsidises the products.
In its report, JP Morgan said Nigeria has not been able to take advantage of the rise in the prices of crude oil on the global scene. Also, the country is not taking advantage of the Russia-Ukraine war to sell its gas to Europe, which is in a dire need of the commodity as it is planning to stop patronising Russian energy.
However, it replaced Nigeria on the list with Serbia due to the country’s high reserves and a fiscally cautious government and also Uzbekistan due to its relatively low debt despite Russian exposure.
The revelation by the US-based lender has triggered questions from Nigerians, who want to know the whereabouts of the funds from crude oil sales.
“JP Morgan Chase, the bankers to NNPC/CBN says not a cent has been deposited into their coffers in three months, specifically from January to March 2022.
“So where are the proceeds from the sale of Nigerian crude oil during this period?” a financial analyst, Mr Kalu Aja, asked in one of his tweets on Twitter on Wednesday
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