Companies May Raise N1trn Corporate Debts In 2021
Commercial banks, international oil companies (IOCs), multinational companies, leaders in fast-moving consumer goods (fmcg) and financial technology (Fintech) firms may issue more than N1trillion corporate debts before year-end.
Head, Research and Consulting, Agusto & Co, Prof. Jimi Ogbobine, who made this known at the FirstGem women conference in Lagos at the weekend, said more than N1 trillion would be raised in corporate debt instruments in 2021, representing a 10 per cent increase from the N910 billion raised in the previous year.
He explained that with risk free yields of Treasury Bills below three per cent, there would be a significant growth in debt market offerings by corporates at the short end of the market, in commercial papers, and in long-term maturities through corporate bonds.
“We believe the corporate debt markets will become more attractive especially for firms that can issue investment grade debt instruments,” Ogbobine said.
The corporate debt market in Nigeria is still in its infancy stage and has only begun to pick up in the last two to three years. Prior to now, must corporates have favoured private placement transactions when raising debt outside of bank loans.
Also, in a report, entitled: “Growing a Liquid Market for Corporate bonds” , Executive Director at Access Bank Plc, Victor Etuokwu, highlighted some of the major bond issuances in the country last year. They included debts from state governments, which stood at N100 billion, other private listings, N150 billion; corporate bonds, N278 billion; and commercial papers (CPs) N382 billion.
Others include FBNQuest N10 billion issuance of three years’ bond at 10.50 per cent; Flour Mills of Nigeria issued N20 billion five-year bond at 11.10 per cent and LAPO Microfinance Bank issuance of N6 billion bond at 13 per cent yield.
At the Fintech segment, Axxela issued N10 billion infrastructure bond of seven years at 14.30 per cent while Dangote issued N100 billion FMCG five-year Bond at 12.50 per cent.
There was also successful issuance of a $350 million five-year senior unsecured Eurobond in 2020 by FirstBank of Nigeria while Coronation Merchant Bank issued N25 billion five-year financial services bond at 2.25 per cent. There was also N150 billion Sukuk Bond for seven years issued at 11.02 per cent, among others.
Etuokwu, who spoke at a meeting organised by the Financial Market Dealers Association of Nigeria (FMDA) Bond Workgroup in Lagos, explained corporate bonds are less costly than receiving a bank loan, including debt service, fees and expenses.
“They have longer term financing when compared to bank loans to meet their needs or to have a better asset and liability tenor match,” Etuokwu said.
He advised that a gradual and phased policy approach should be taken under a master plan for improving the corporate bond market.
“Corporate bond markets exhibit different characteristics because of their country-specific economic and market conditions.The government’s role will be an essential element in the effort to improve the market structure,” Etuokwu said.
He said the Federal Government remains the dominant issuer in the market and proponents of corporate bonds argue that the government bonds and the rate of issuance have a tendency to constrain corporate bonds issuances.
However, the corporate issuer segment of the market is beginning to witness significant uptick due to initiatives such as the short-term bond issuance and the recently launched private company notes market windows of the FMDQ.
These initiatives have provided issuers with a variety of options and structures that have improved time-to-market and therefore access to much needed capital.