Daily Watch – Equities drop ₦49b in Q1, Ecobank injects $64m into Nigerian unit

Fitch has affirmed the positive economic ratings of Lagos State despite the missed contracted services payment by Visionscape Sanitation Solutions as a result of halting of the waste management agreement. Fitch has said that Lagos’s B+/(AA+(ngn)/ ratings remain stable and unaffected by the default of the SPV, Municipality Waste Management Contractors Limited, led by Visionscape Sanitation Solutions. The default was caused by the stoppage of the said contract and the subsequent resolution of Lagos State House of Assembly. The SPV is a private consortium led by Visionscape Sanitation Solutions, a company mandated to manage Lagos’ waste collection and disposal. Early this March, the SPV missed the semi-annual principal and coupon payments for about ₦800 million on the ₦4.85 billion tranche under MWMCL’s ₦50 billion medium term note programme. The bond was issued by MWMCL reportedly to raise funds to purchase recycling trucks and equipment, linking debt service to the proceeds coming from Lagos for the implementation of the waste recycling contract. Some market participants had deemed MWMCL’s default to imply also the default of Lagos, given the state’s irrevocable standing payment order whereby a stream of its own internally generated revenue was remitted to the SPV account for debt servicing. But Fitch, in its opinion, said the ISPO, and similar arrangements in other countries, is a mechanism enhancing the predictability of payment flows from an administration, potentially enabling it to address liquidity stress by prioritising the payment of certain liabilities. 

Nigerian equities closed Q1 2019 with net capital depreciation of ₦49 billion, indicating a sharp reversal from the bullish trading that saw equities with net capital gain of ₦1.38 trillion in Q1 2018. The All-Share Index indicated an average year-to-date return of -1.24 percent implying an adjusted net depreciation of ₦145 billion during the three-month period ended March 31, 2019. The aggregate market value of all quoted equities on the NSE, however, dropped by ₦49 billion, supported by new supplementary listings during the period. The performance in Q1 further aggravated the decline at the local equities market, which had suffered an average decline of 17.81 percent or about ₦1.89 trillion last year. With the decline in Q1, the average decline in investors’ portfolio over the past 15 months now stands at 18.83 percent, with a net decline of ₦1.937 trillion in the total market value of quoted equities.

Pan-African banking conglomerate, Ecobank has injected $64 million into its Nigerian unit after its decision to adopt a different exchange rate for the naira to the one supported by the CBN affected its capital ratio. The commercial bank said its board decided in November to adopt a market exchange rate of ₦364 to the dollar, a move away from the country’s official exchange rate of ₦306. The weaker rate is more commonly used in trading and has more liquidity than the official exchange rate. Ecobank recorded gross earnings of ₦773 billion in 2018, indicating a percentage increase from ₦763 billion recorded in 2017, according to its audited results for the 2018 financial year. Profit before tax rose from ₦88.3 billion in 2017 to N135.5 billion in 2018, amounting to a 53 percent increase year-on-year. Earnings per share increased from ₦2.22 per share in 2017 to ₦3.30 per share in 2018. Year on year, earnings per share rose by 49 percent.

Nigeria and other countries outside the Organisation for Economic Co-operation and Development group lost about $200 billion or 1.3 percent of their annual GDP to unfair global corporate tax system exploited by companies to shift profits to low-tax locations, IMF president, Christine Lagarde has said. While speaking on Corporate Taxation in the Global Economy at the Peterson Institute for International Economics, Washington D.C, Lagarde, stressed the need for new corporate tax rules across the globe. “It may be difficult, but it is possible to create a corporate tax system that better reflects the changes in the global economy,” she said. The IMF boss highlighted three major reasons for urgent reform of global corporate tax system, which include: the ease with which multinationals seem able to avoid tax, and the three-decade-long decline in corporate tax rates, undermines faith in the fairness of the overall tax system. The second is the current situation which is especially harmful to low-income countries, depriving them of much-needed revenue to help achieve higher economic growth, reduce poverty, and meet the 2030 Sustainable Development Goals. The “third is an impetus for rethinking international corporate taxation stems from the rise of highly profitable, technology-driven, digital-heavy business models. Advanced economies have long shaped international corporate tax rules, without considering how they would affect low-income countries according to Lagarde.