Nigerian Companies Battle Steeper Costs of Servicing Debt As Yields Rise

Companies have raised the rates on their debt offerings to woo investors as yields rise.

Corporations tapping funds from the debt market of Africa's biggest economy to meet working capital needs and other financial obligations are having to pay more for such, in a shift that means issuers may no longer be able to leverage low rates of the recent past to refinance higher-cost debt.

To remain competitive and win investors in search of higher yields, MTN Nigeria and Nigerian Breweries, for instance, have had to scale up rates in their latest debt offering rounds, Bloomberg said Tuesday, citing a note to clients by Stanbic IBTC Asset Management.

A commercial paper of a 270-day tenor issued by the mobile network operator was offered at 8 per cent, but its indicative rate came at 6 per cent, Stanbic said.

"Corporates such as Nigerian Breweries, Dufil Prima, Coronation and Fidson, also adjusted their yields upward in a bid to raise a combined sum of 70 billion naira," it said.

In 2020, yields on short- and long-term bonds hit their historic lows following the Central Bank of Nigeria's curb on certain short-term papers, and its lowering of the monetary policy rate in a move targeting growth.

The urgency to shore up working capital and refinance high-priced loans had sparked off a frenzy for corporate debts of short tenor among issuers.

Firms issued commercial papers topping N801 billion last year, according to Chapel Hill Denham. That compares with the N467.6 billion reported for the year before.

"What investors are telling issuers is that they might want to benchmark the 270-day commercial paper against the one-year treasury bill.

"Investors are asking for more, because there is a view that rates will continue to go up and inflation is at over 17%," said Lanre Buluro, sales director at the Lagos-based broker.

Bills maturing in 12 months traded for seven per cent at the Tuesday session of the secondary market.

Stanbic expects rates to keep pushing higher in the month ahead because investors are not likely to back down from pursuing higher yields.

It will stoke "a slowdown in the supply of corporate commercial paper as companies re-consider the opportunity cost of raising funds from the debt market as yields move toward double digit," according to the fund manager.

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