Meristem Wealth Management Limited 3 March, 2015 T-bills Auction Scheduled 4 th March, 2015

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1 Summary of Previous Auction T-bills Auction Scheduled 4 th March, 2015 Issue on Offer/Summary Stop Rate: 91-Day 10.75% 182-Day 13.70% 364-Day 15.25% Amount: 91-Day NGN32.44bn 182-Day NGN30.00bn 364-Day NGN80.00bn Summary of Current Auction Auction Date 04/03/2015 Settlement Date 05/03/2015 Auction Size: 91-Day NGN17.850bn 182-Day NGN50.000bn 364-Day NGN bn Meristem Advised Stop Rates 91-Day % 182-Day % 364-Day % Maturing TB Instruments 91-Day NGN17.850bn 182-Day NGN50.000bn 364-Day NGN bn The Central Bank of Nigeria (CBN) is scheduled to hold a Treasury Bills (T-Bills) Primary Auction on the 4 th of March, T-Bills worth NGN bn will mature, while an equal amount will be issued in 91-day, 182-day, and 364-day instruments. The CBN is expected to auction NGN17.850bn, NGN50.000bn and NGN bn in 91-day, 182-day and 364- day instruments respectively. Outlook on Yields /Advised Stop Rates We analyse the current yield environment in light of the outcome of the previous auctions on the respective instruments. Since the last auction on the 18th of February, 2015, yields on T-bill instruments have trended northwards, save for the 12M instrument (+2.34%), recording an increase in the average yield of 0.41% across tenors. Yields across other tenors advanced by 1.14%, 0.81%, 0.55%, 1.14% and 1.16% for the 1M, 2M, 3M, 6M and 9M respectively. The continuous increase in yields is not unconnected to the tacit devaluation of the Naira from NGN168/USD to NGN198/USD by the Apex bank, following the closure of the official window (RDAS). This action is projected to further pressure import costs, thereby discouraging corporate investments, whilst instigating cost-push inflation. Expectedly, investors would be averse to investing in existing bond instruments with lower yields (relative to anticipated rise in inflation), while shifting preference to new issues with higher yields to offset inflationary cost. In spite of the above reasons, we expect the auction to be oversubscribed due to the substantial liquidity in the system. However, taking a cue from what transpired in previous auctions, investor preference has shifted to the longer end of the sovereign yield curve, which offers the highest yield and accounts for c.75% of the total auction. Based on the stated reasons above, current mood in the market and expected level of participation in the auction, we advise rates with the dual purpose of achieving the best possible yields as well as ensuring the success of the bid. The stop rates for the respective instruments are listed below: 91-Day NGN17.850bn 10.70% % 182-Day NGN50.000bn 13.60% % 364-Day NGN bn 14.90% % 1 P a g e

2 Investing through Meristem Wealth Management Limited Meristem Wealth Management Limited charges a transaction fee of 0.25% of the principal amount invested, and there will be three (3) days prior notification before maturity for all Treasury Bills investments. The income from investing in T-Bills is tax free, so interest received is not subject to withholding tax, and you will receive an immediate Investment confirmation letter for the Treasury bills. Also note that the T-Bills certificates can be used as collateral for securing loans. Participation Process The T-bills Primary Auction bid holds twice in a month (i.e. every other Wednesday). The above likely stop rates are our estimates and might not necessarily hold true, as the final decision always lies with the CBN based on the auction process. Recent Stop Rates on Past Auctions for 91-Day, 182-Day and 364-Day Instruments Stop Rate Yield 91-Day Apr Aug Dec Apr Aug-14 Stop Rate Yield 182-Day Apr Aug Dec Apr Aug-14 1 Stop Rate Yield Day Source: CBN, FMDQ, Bloomberg, Meristem Research 2 P a g e

3 About Treasury Bills Treasury Bills (T-bills) are marketable money market security that serves the purpose of raising money for the government and also helps in monetary policy management of the Central Bank. T-bills are short-term securities that mature in 1 year or less from their issue date. They are usually issued with 3-month, 6-month and 1-year maturities. How is Return Determined? T-bills are purchased for a price that is less than their par (face) value; when they mature, the government pays the holder the full par value. Effectively, your interest is the difference between the purchase price of the security and what you get at maturity. For example, if you bought a 90-day T-bill at N9,800 and held it until maturity, you would earn N200 on your investment. This differs from coupon bonds, which pay interest semi-annually. The determination of rates on the instruments in the secondary market solely depends on the forces of demand and supply as occasioned by the prevailing macro- economic environment. How does the Auction Process work? Treasury bills (as well as notes and bonds) are issued through a competitive bidding process at auctions. Primary market trading of Treasury bill instruments entails auctions by the country s monetary authority The Central Bank of Nigeria. T-bills are auctioned at established rates which determine the return to investors. Purchasing these instruments in the primary market and holding it till maturity would mean that the investor gets a fixed interest payment. Benefits of T-bills The biggest reasons that T-Bills are so popular are that they are one of the few money market instruments that are affordable to the individual investors. Other positives are that T-bills (and all Treasuries) are considered to be risk-free investments because the Federal Government backs them. Also, T-bills are tax free unlike equities. The only downside to T-bills is that investors will not get a great (alpha) return because Treasuries are considered exceptionally safe. 3 P a g e

4 Contact Information Wealth Management ( ) ( ) ( ) Tel: Brokerage Services ( ) Trustees ( ) ( ) Tel: Client Services ( ) 4 P a g e

5 Disclaimer Notice: Meristem and any of its associated or subsidiary companies or the employees thereof cannot be held responsible for any loss suffered by relying on the said information as this information as earlier stated, is based on publicly available information, analysts estimates and opinions and is meant for general information purposes and should not be construed as an offer to buy or sell or a solicitation of an offer to buy or sell securities or any financial instruments. The value of any investment is subject to fluctuations, i.e. may fall and rise. Past performance is no guide to the future. The rate of exchange between currencies may cause the value of investment to increase or diminish. Hence investors may not get back the full value of their original investment. Meristem Wealth Management Limited is licensed and registered with the Securities and Exchange Commission (SEC). Meristem Wealth Management Ltd s registered office is at 3, Norman Williams Street, South West, Ikoyi, Lagos, Nigeria. Website: crmwaelth@meristemng.com. Meristem Wealth Management Limited P a g e