Naira Trades Strong as Oil-Backed Loan Boosts Sentiment
The Nigerian Naira traded on a bullish note on Monday after Africa Export-Import Bank (AfreximBank) syndicated foreign currency (FCY) loans backed by oil hit the economy months after it was first announced.
With an expectation that the large sum would saturate already tightened forex market conditions, the naira regained balance after it had crossed the red line early in the year, weakening to N1,035 at the official window.
According to data from the FMDQ platform, the Naira edged the greenback by 5.79% at the official market, closing at N838.95 from N890.54 per dollar the previous session.
However, in the parallel market, the Naira depreciated against the US dollar, routing to N1,277 per dollar as FX demand outweighed supply in the market. Naira Rises by 19% as Forex Market Pressures Ease
Nigeria has shifted attention to managing its worsening local currency exchange following the scarcity of US dollar inflows. In June, the local currency was depreciated by 40% to reduce its relative overvaluation and obtained a market clearing rate.
This expectation has not been met as the exchange rate continues to worsen, with a widening gap between the official and parallel markets.
To boost the supply side, the Central Bank recently announced the resumption of OMO issuance to enhance FX flow and system liquidity management.
Last week, the African Export-Import Bank (Afreximbank) announced the successful disbursement of the initial tranche of the syndicated $3.3 billion crude oil prepayment loan to the Nigerian National Petroleum Company Limited (NNPC). The bank said the initial disbursement was about $2.25 billion, the second and final tranche of $1.05 billion expected to be disbursed later.
The bank described the facility as a “landmark financing and Nigeria’s largest crude oil prepayment facility as well as one of the largest syndicated loans raised in Africa in 2023. “Investors were keen to consider ticket sizes of $250 million and $500 million amidst current headwinds and year-end pressures in the loan markets,” the bank said on Saturday.
The terms for the 5-year facility, which have attracted critical reviews in Nigeria in recent times because of its impact on the country’s rising debt profile, carry a margin of 6.0 per cent per annum above the 3-month secured overnight financing rate.
Also, the transaction structure has an embedded price balance mechanism where 90 per cent of all excess cash from the sale of the committed barrels of crude oil (after debt service) would be released, while the balance of 10 per cent would be used to prepay the facility.
#Naira Trades Strong as Oil-Backed Loan Boosts Sentiment
