Following the Central Bank of Nigeria’s directive restricting non-banking corporates and individuals from participating in its open market operations (OMO) bills market, there is a renewed drive by corporates to raise capital through the debt market, taking advantage of falling interest rates.
Checks by BusinessDay show that currently two corporates – Nigerian Breweries plc and Flour Mills of Nigeria plc – are in the market to raise a total of N65bn through bonds issuance and commercial paper.
Analysts say issuers are fully taking advantage of the liquidity glut in the money market, particularly as maturities of debt securities are expected to peak this month.
The return of corporates to the fixed income market is a welcome development because analysts had in the past fretted over the crowding out effect of Federal Government’s borrowing on the private sector.
Inflows from OMO maturities from instruments worth N327.56 billion are expected this week.
“The unprecedented unorthodox policy measures of the CBN have also raised the risk appetite of local investors in search of investable assets offering higher yields, including corporate debt securities,” Chapel Hill Denham analysts said in a report.
Flour Mills in a notice to the Nigerian Stock Exchange dated January 16 announced the opening of a new N20bn bond offer under its N70bn Bond issuance programme, the first since November 2018 when the company raised a total of N20.1bn through a N10.1bn 3-year bond at 15.50 percent and N10.0bn 5-year bond at 16.00 percent. The book build process for this offer closes on Friday, February 7, 2020.
The choice of bonds by Flour Mills is to lengthen the maturity profile of its debt in a low-interest-rate environment, and also reduce refinancing risk of short-dated securities.
According to the management, proceeds would be used to refinance existing short-term debts to increase efficiency of its balance sheet. Analysts at Chapel Hill Denham estimate FMN’s total debt at N133bn.
“This will lead to a debt-to-equity of 86 percent and net debt-to-EBITDA of 2.14x, from 73 percent and 1.77x, respectively, prior to the issuance,” Chapel Hill said.
Also, last week, in a bid to take advantage of the low-interest rate to raise cheaper short-term debt, Nigerian Breweries, the nation’s largest brewer by market size, launched Series 5 and 6 of its Commercial Paper programme. The Series 5 has a tenor of 180 days, while the Series 6 has a tenor of 270 days, according to the management. The aim is to raise up to N45 billion to support the company’s short-term funding needs.
The 180-day tenor is priced at a yield of 5 percent (discount rate – 4.88 percent), while the 270-day tenor is priced at a yield range of 6.2 percent – 6.75 percent (discount rate range of 5.92 percent – 6.43 percent).
A Commercial Paper (CP) is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts payable, inventories and meeting short-term liabilities.
This is coming on the heels of a successful run of the company’s first N100 billion CP programme which ran from 2015-2018.
According to Chapel Hill Denham, after the completion of the CP programme, NB’s total debt would be N88bn comprising long-term debt of N40bn, short-term debt of N3bn and CP of N45bn.
“Resultantly, we expect NB’s debt-to-equity ratio to increase to 53.6 percent from 44.3 percent as at 9M-19, while net debt-to-EBITDA is expected higher at 1.30x from 1.07x in 9M-19,” the report said.
OLUFIKAYO OWOEYE
