Nigeria businesses are holding off on issuing new debt, creating a quiet spell in the corporate bond market, waiting for a more favourable borrowing environment.
With interest rates at their highest levels in decades, the cost of servicing new debt has become expensive for many firms.
Consequently hoping for a series of rate cuts that would make tapping the capital markets a more attractive and financially viable option.
Data from FMDQ showed that there has been no new issuance of Commercial Papers (CPs) in July. Unlike the second quarter of the year, especially June, when there was a surge in issuance.
Olaolu Boboye, head of research at CardinalStone, said that a lot of companies are waiting for the monetary committee to cut rates so they can raise at a cheaper rate.
“They have reaccessed markets, and the approach for rate is still biased towards the downside, so companies might be looking to wait it out because why issue at a premium of 20-23 percent, when they can issue later in the year at 15-16 percent,” he said.
A Chief Financial Officer of a pharmaceutical firm said, “ It no longer makes sense to issue at current rates, when there’s likely to be a rate cut further in the year, right now, one will have to issue at a premium to a government instrument to attract investors.”
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This is despite a decline in the yields of government short-term debt. At the last Nigerian Treasury Bill auction, investors saw the yield decline to 18.86 percent from 29 percent at the beginning of the year. Similarly, the FGN Savings Bonds are currently issued at 15 percent for the two-year bond and 16 percent for the three-year bond, respectively, and the recent FGN bonds are also in the 16 percent range.
Between April and June, BusinessDay saw a rush in Commercial Paper; the amount being offered varied widely, from as little as N1.4 billion to as much as N193 billion.
Access Bank raised N193.25 billion in two tranches, with returns between 21.5 percent and 24.75 percent.
Others include Coleman Industries with N50 billion under its N100 billion programme at 23-24.75 percent interest, Mecure, a pharmaceutical firm, also raised N10 billion worth of CPs at 26 percent, and SKLD, with one of the lowest issues of N1.4 billion with a 24.75-27 percent return.
FCMB also made a strong entry with a N70 billion dual-series offer.
Gbolahan Ologunro, portfolio manager at FBNQuest, explained that the surge in CPs in the second quarter was a result of discussions that have been ongoing with investment banks on the corporate debt market, on when to access the market at lower yields.
Also, Ayodeji Ebo, managing director of Optimus by Afrinvest, noted that a rush to issue CPs in the first half of 2025 may have been accelerated by a new policy requiring companies to seek SEC review and approval before issuing such instruments.
He said firms may have fast-tracked their plans ahead of the July enforcement, as the new process could be more rigorous and time-consuming.
Some of the new rules by the SEC for issuing Commercial Paper (CP) to raise short-term funds are: Companies must have at least N500 million in shareholders’ funds, a level they must maintain for the duration of the CP. They also need an investment-grade credit rating from a recognised agency and cannot have defaulted on previous debts. If a guarantor is involved, a formal agreement must be in place.
