Firms eye Nigeria recovery as bond, share sales soar

Nigerian firms are getting ahead of the expected rebound in an economy mired in recession, by raising funds to boost capital expenditure and expand manufacturing output.

Capital raising is being done through share sales, as the local stock market sustains a 25 percent rally year to date, and by bond sales, as inflation expectations fall and yields moderate.

Planned or announced share and bond sales by firms across sectors have exceeded N350 billion, including Lafarge Africa with a right issue of N140 billion, Unilever Nigeria Plc with a right issue of N63 billion, Union Bank of Nigeria Plc, which wants to raise N50 billion through a rights issue, Guinness Nigeria N40 billion share sale, and Forte Oils planned rights issue of N20 billion.

On the fixed income side, there is Mixta Real Estate, with N4.5 billion and Dufil prima (makers of Indomie noodles) seeking to raise N40 billion.

“It is in furtherance of our commitment to the development of Nigeria’s economy, opportunities available and growth of domestic debt capital market, that Dufil has established a N40 billion Bond Issuance Programme designed to avail the company with alternative sources of capital, via the bond market,” Madhukar Khetan, the Chief Operating Officer for Dufil said.

“The establishment of the Bond Programme will be followed with the inaugural Series 1 issuance, which will be offered to investors looking to diversify their investment portfolio with high grade corporate debt issuances.”

The total value of outstanding bonds issued by Nigerian corporates is N309 billion, according to data from the FMDQ OTC.

Stanbic IBTC Capital Limited, a subsidiary of Stanbic IBTC Holdings PLC, acted as Lead Issuing House for the Dufil Programme establishment.

Guinness, the local division of the world’s leading spirit maker, Diageo, said funds raised through its rights issue will support Guinness in executing its strategy in the face of a recession in Africa’s biggest economy.

“Our expectation is that funds raised will help mitigate the impact of increasing finance costs, optimise our balance sheet and improve the company’s financial flexibility,” Chief Executive, Peter Ndegwa said in a statement.

Capital expenditure by Nigeria’s largest listed firm’s fell 25 percent in 2016 as a raging recession and slumping company profits led businesses to hold tight on spending, amid rising inflation and falling demand.

Investment in property plants and equipment by the 30 largest listed firms on the Nigerian Stock Exchange (NSE), or the NSE – 30 slumped by N142 billion last year, to N430 billion, from N572.8 billion in 2015.

Worst hit sectors included oil and gas, down 57 percent year on year, construction negative 80 percent and industrials, down 43 percent, according to data compiled by BusinessDay.

According to Julius Omodayo-Owotuga,the Executive Director and Group Chief Financial Officer (CFO), of Forte Oil, the company has commenced preparation to raise additional capital, as it seeks opportunities.

“We continue to explore opportunities and raise money in tranches. This series provides us with the necessary liquidity to actualise our growth strategy and position the company for the years ahead,” Omodayo-Owotuga said.

Nigeria’s economy contracted by 1.5 percent in 2016, the first negative growth rate since 1991.

A near 50 percent slump in the average price of crude oil between 2015 and 2016, led to a 36 percent naira devaluation in June 2016 as the Central Bank of Nigeria (CBN), finally succumbed to pressure and adjusted its naira – dollar peg.

The devaluation meant property and equipment (which are mostly imported) became more expensive for firm’s to buy, amid a slowdown in the economy and weaker company profits.

Meanwhile, companies held off on capital spending last year, as concern over the outlook for the Nigerian economy and policy choices mounted.

Unilever’s equity sale plans should consolidate gains realised from the implementation of belt tightening measures and price hikes, raising scope for sustained earnings growth, according to Amaka Ukoha, research analyst at investment firm ARM Securities.

“Reflecting the additional equity capital, we project FY 17 PAT of N9.9 billion,” Ukoha said.

A pickup in private sector investment, along with stimulus from the expansionary 2017 budget , could provide a boost to domestic demand and generate a larger impact on the economy which is estimated to grow at just 0.8 percent this year.

 

PATRICK ATUANYA