JPMorgan reveals FG may raise $17bn from sale of oil assets

JP Morgan has revealed that the Federal Government might earn up to $17 billion if it sells its ownership in the majority of joint venture oil and assets.

The government’s intention to increase foreign exchange profits and external reserves in order to reduce currency pressure was the backdrop for the United States bank’s projection.

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This was noted in a study by the US bank titled “Nigeria: Reform pause rather than fatigue (CBN’s financial accounts open a can of worms)”.

According to the lender’s most current statistics, the Central Bank of Nigeria’s net foreign exchange reserves were approximately $3.7 billion as of the end of 2022, down from the $14 billion they were at the end of 2021.

It said, “Based on partial information from the audited financial accounts, we estimate that CBN’s net FX reserves were around $3.7bn at the end of last year, from $14.0bn at end-2021. In arriving at the said estimate we make a few assumptions which if incorrect would substantially change the picture.

“They include: (i) an addition of $5bn in IMF Special Drawing Rights to external reserves in order to arrive at total gross FX reserves of $37.8bn, broadly in line with the 30-day moving average of $37.08bn previously published on the central bank’s website; (ii) adjusting the gross external reserves with three key FX liability lines that include FX forwards (US$6.84bn), securities lending ($5.5bn) and currency swaps (US $21.3bn).

“And (iii) estimating currency swaps by backing out FX forwards and outstanding OTC Futures balances from an overall aggregate published i n the financial accounts.”

JP Morgan asserts that the lack of net foreign exchange reserves will keep the FX market under pressure, but notes that the CBN can still source foreign exchange at commercial and semi-commercial rates.

According to the statement, the CBN and domestic commercial banks’ currency swap agreements are projected to continue to be quite profitable for a while.

Commenting on the government assets which can provide succor in the medium term, it stated, “For example, the President’s policy advisory council has recommended the government sell down its stake in the most joint-venture oil and gas assets, a proposal that is estimated to bring in up to $17bn.”

The US bank further said the recently announced $3bn loan to the NNPC could help partly improve FX liquidity conditions in the market, with the oil company selling the dollars to the CBN and remitting the naira proceeds to the government as upfront payments for oil revenues and taxes.

However, the large external financing needs of the private sector will sustain forex pressures, the bank warned.