Nigerian companies raise record debt in 2020 on low-interest rates

Debt raised by Nigerian corporates in 2020, reached levels never before seen, thanks to the low-interest-rate environment that pushed companies to borrow cheap funds.

Data obtained from the Securities and Exchange Commission (SEC) and FMDQ, show that corporate debt issuance hit N1.114 trillion in 2020, the highest on record.

This comprises debt raised via short-term commercial papers and long-term corporate bonds excluding private placements.

Commercial papers accounted for the most with a total of N746 billion raised last year as opposed to N509 billion and N399 billion in 2019 and 2018 respectively.

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Corporate bonds issuance also surged with companies issuing N368 billion in 2020, up from N163 billion and N187 billion in 2019 and 2018 respectively.

“The extraordinary dovish monetary policy of the CBN last year created the most benign funding condition for local corporates in at least two decades,” said Omotola Abimbola, economist and researcher at Chapel Hill Denham.

“We saw that the prime lending rate fell to a record low, but the sub-prime lending rate was relatively sticky given the risky environment,” Abimbola said in a tweet.

Large corporates as well as the Federal Government had a field day last year, raising cheap debt from the local market, after a decision by the Central Bank barring local investors from investing in OMO bills, sparked liquidity in the fixed income space, crashing yields.

Average Corporate bond yield at issue dropped by 6.1 percentage points to 9.5 percent last year, from the high of 15.6 percent in 2019.

Similarly, the average CP discount rate at issue dropped by over 6 percentage points to 6 percent in 2020 from 12.6 percent in 2019.

As such, Corporate debt issuances (bonds + CPs) rose from N671 billion in 2019 to N1.14 trillion last year.

“Including private placements, the figure could probably be close to N2tn as some states (in breach of SEC rules) indirectly issued contractor bonds,” Abimbola said.