Nigerian Firms Increase Rate to Attract Investors in Debt Fund Raising

15 April 2021

Nigerian companies have been said to be paying more to borrow in the capital markets, signalling an end to the era of low rates which many issuers took advantage of to refinance higher-cost debt.

Stanbic IBTC Asset Management, said "Firms including MTN Nigeria Communications (MTNN) and Nigerian Breweries have been forced to raise the rates offered on new debt issues due to aggressive bids by investors seeking higher yields,

"MTN Nigeria issued 270-day commercial paper at eight per cent, though the indicative rate was six per cent."

The Company said, "Corporates such as Nigerian Breweries, Dufil Prima, Coronation and Fidson Healthcare Plc, also adjusted their yields upward in a bid to raise a a combined sum of N70 billion."

Firms have raised N170 billion through commercial paper in March. Yields on short- and long-term bonds in Africa's largest economy dropped to record lows last year due to a surge in liquidity after the central bank restricted purchase of some short-term papers and eased monetary policy to aid recovery. This is after the pandemic plunged the country into its second recession in four years.

Issuance of short-term corporate debt spiked as firms took advantage of the low rates to refinance expensive loans and boost working capital.

According to Chapel Hill Denham, more than N801 billion was issued in corporate commercial paper in 2020 from N467.6 billion in 2019.

The director of sales at Chapel Hill Denham, Lanre Buluro, said, "What investors are telling issuers is that they might want to benchmark the 270-day commercial paper against the one year Treasury bill sold for eight per cent at the end of March Investors are asking for more, because there is a view that rates will continue to go up and inflation is at over 17 per cent."

Stanbic further stated that "One-year bills traded for seven per cent on the secondary market on Tuesday. Rates will maintain an upward trend in the coming month as market participants continue to remain aggressive in their search for higher yields.

"This will cause 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."

Stanbic IBTC Capital Limited announced that MTN Nigeria Communications Series one Bonds of up to N100 billion under its N200 billion Bond Issuance Programme has commenced and scheduled to close April 16, 2021.

Also, FMDQ Exchange Approved the registration of the Fidson Healthcare N10 billion Commercial Paper (CP) programme on its platform

In a statement provided by the chief financial officer, Fidson Healthcare, Imokha Ayebae, said, "We are glad about the successful registration of Fidson Healthcare's N10.00 billion CP Programme on the FMDQ platform."

According to him, this is particularly significant as it coincides with the company's 26th anniversary on March 1, 2021. Since its inception in 1995, Fidson Healthcare has remained committed to the growth of the healthcare sector in Nigeria.

He said, "This strategic move aligns with our vision to be the preferred healthcare provider as a leading player in the pharmaceutical manufacturing industry in Nigeria and West Africa."

"The CP Programme, which is poised to further broaden the company's sources of capital by accessing funding from the Nigerian debt capital markets, will also reduce our overall funding costs. Proceeds from this Programme will be used to meet the company's short-term working capital requirements which are geared towards providing quality services to our valued customers."

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