As investors gravitated towards high-yielding government debt instruments in 2024, Nigerian businesses had a shortage of finance.
The overall number of business issuances in 2024 dropped to 133 from 140 issued by different companies the year before, according to data from FMDQ.
In a same vein, the amount issued in 2024 decreased by 12% to N790.4 billion from N900 billion the year before.
The Central Bank of Nigeria (CBN) raised benchmark interest rates eight times and by 875 basis points to 27.5 percent in November 2024 from 18.75 percent at the start of the year in an effort to combat persistently high inflation.
The private sector was forced out as a result of rising interest rates since it became more costly for corporations to borrow money from the capital market.
Yields on one-year Treasury bills (T-bills) began to rise in tandem with the ongoing rate hikes and reached two peaks. The real yield was 28.36 percent in the July 2024 auction and then rose to 30.7 percent in the November 20 auction.
The December 5 auction of Nigeria’s one-year T-bill attracted N2.53 trillion in bids, almost five times the amount offered on system liquidity, indicating the highest level of investor interest this year.
Because of the high interest rate, companies had to provide their instruments at a more attractive rate in order to draw in investors.
In 2024, the average discount rate on commercial papers rose from 16.4% in 2023 to 27%. At up to 30 percent, some commercial papers were published. Hillcrest Agro-Allied Industries, which increased its commercial paper at an effective yield of 35 percent, is one example of this.
This implies that businesses must now contend with higher borrowing prices in addition to the fact that overhead costs have gone up as a result of recent government actions. All things considered, this is bad news for businesses, according to Opeyemi Babalola, portfolio manager at Comercio Partners.
Large corporations that delved into the commercial papers industry included MTN Nigeria Communications Plc, Flour Mills of Nigeria Plc, GZ Industries Limited, Dufil Prima Foods Plc, C&I Leasing Plc, and Saroafrica Funding SPV Plc.
With a total of 12 issuances worth N18.2 billion, Daraju Industries Limited was the highest issuer in terms of quantity. Skymark Partners Limited came in second with nine issuances for N10.7 billion.
However, with five commercial paper issuances totalling N141.8 billion in 2024, Dangote Sugar Refinery Plc was the top issuer by amount.
Dangote Cement Plc, with N119.4 billion from four offerings in 2024, comes next.
Many analysts had predicted earlier in 2024 that the high-yield condition would force private enterprises away.
According to Joshua Joseph, a fixed-income analyst at CSL Securities, the CBN’s hawkish approach was typical in order to reduce inflationary pressure and maintain equilibrium.
However, he claimed that because of the high interest rate environment, investors were compelled to look for large returns, which would result in an increase in borrowing costs.
“For corporations with poor credit ratings, the impact will be very high-yield bonds; however, for companies with excellent credit ratings, the rates will be slightly higher than those of the government bond, albeit at a high cost of borrowing,” he stated.
The number of corporate bond issuances decreased from four last year to one this year, according to statistics from the FMDQ and Africinvest 2025 forecast report.
After the CBN’s historic boost, Nigerian banks raised their lending rates. Businesses and people that already had bank loan facilities had to pay more to service their loans as a result of this development.
The largest bank in the nation by market capitalisation, Zenith Bank, increased its interest rate from 25% to 30% by 500 basis points.
The evaluation became operative on March 12, 2024. The lending rates offered by Keystone Bank and First Bank varied from 30.5 to 36 percent and 26 to 36 percent, respectively.
