To sustain their businesses and plug capital shortfalls, corporate institutions have continued to explore alternative financing options by tapping the Nigerian debt capital market.
Valency Agro Nigeria Limited, Total Nigeria, Coronation Merchant Bank and Mixta Real Estate plc are the four companies that have raised funds this year through commercial paper (CP). The companies raised a combined N27.41 billion between January and March 5, 2021, as compiled from data by FMDQ.
Compared to the double-digit interest rate the companies would have raised the funds some three years ago, the four corporates from the different sectors of the Nigerian economy accessed the short-term capital at a cheaper rate of an average 5 percent.
Commercial papers represent short-term debt instruments issued by large organisations to meet their financial obligations as well as cover short-term receivables within a period usually between 15 and 270 days. Generally, CP carries lower interest repayment rates than bonds due to the shorter maturity date.
Nigeria’s biggest telco, MTN, plans to raise N100 billion (series 3&4, N50bn each) in CP this week with an interest rate of 4.8 percent for the 180-day series 3 and 5.7 percent for the longer 270-day series 4.
If the company with the largest mobile subscribers in Nigeria (79m in January 2021) was to go to banks to borrow that kind of money it would have got at least 11 percent. That is even because MTN is big. If it were smaller companies they would probably be getting it at around 15 percent or more.
“It presents an opportunity for companies to raise cheap capital, and those that have existing bonds that were raised some two or three years ago when rates were about 15-18 percent can call the bond,” Yinka Ademuwagun, research analyst at United Capital, said, adding that now might be a good time for companies to restructure their debt and lower finance cost to grow their bottom-line.
While the low-interest-rate environment in Nigeria’s debt market has been a boon for large corporates who are raising capital at cheaper rates compared to bank loans, micro and small businesses, which form the bulk of firms in the country, are left out.
Lack of proper documentation and inability to meet listing requirements are some of the reasons Nigerian small businesses are unable to tap the low-interest rate opportunity.
Checks by BusinessDay, however, show that some of the small businesses indirectly benefit from the big companies who are accessing cheap funds.
Although there has been a recent uptick in the yields on Federal Government short-term debt instruments – like treasury bills, the return on investment in real terms remains lower than the country’s rising double-digit inflation rate, and this holds an opportunity for corporates to raise capital through the CP.
While interest rates in Nigeria have always been high due to the monetary system in vogue since 2009, which sought to use FGN bonds/T-bills and OMO bills as a means of attracting US dollars to stabilise the naira, but October 23, 2019, OMO policy by the central bank, which prevents domestic investors from participating in the auction, drove rates to its record low levels.
After touching its lowest record since 2016 in the fourth quarter of last year, rates on T-bills climbed to 13-month high of 6.5 percent for the 364-day bill, as compiled from Nigerian treasury bills primary market auction results for March 10, 2021. The real return in the 364-day is -9.97 if it is adjusted against the over 34-month high inflation rate of 16.47 percent in January 2021.
Analysis of FMDQ data shows that Valency Agro Nigeria Limited raised N5.12 billion Series 1 under its N20 billion CP Programme and Coronation Merchant Bank raised N1.29 billion Series 11 and N2.34 billion Series 12 CP under its N100 billion CP Issuance Programme.
While Mixta Real Estate raised N2 billion Series 32 and N1.66 billion Series 33 CP under its N20 billion CP Issuance Programme, Total Nigeria accessed N2.25 billion Series 1 and N12.75 billion Series 2 CP under its N30 billion.
FMDQ also published on its website that it had approved the registration of the Fidson Healthcare N10 billion CP Programme and N20 billion for Parthian Partners Limited.
According to FMDQ, the milestone for Fidson Healthcare has seen it join other corporate institutions across various sectors of the economy, “to not only raise capital to support its business operations but to also enjoy the benefits of visibility, transparency and liquidity that come with FMDQ’s Quotation Service.”
“The CP Programme, which is poised to further broaden the company’s sources of capital by accessing funding from the Nigerian debt capital markets, will also reduce our overall funding costs,” Imokha Ayebae, chief financial officer, Fidson Healthcare, said.
