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Nigerian corporate firms raced to the fixed income markets in the first six months of year, undeterred by the economic fallout from the Ukraine war as they tried to lock in relatively cheap borrowing, but uncertainty surrounding 2022 elections might force corporates to put a brake on borrowing.
For instance, commercial paper issuances hit N487.0 billion in half-year (HI) 2022, and that is 30.11 percent higher than 2021’s N374.30 billion at an average rate of 11.30 percent, according to data gathered by Afrinvest Securities.
Drilling down the figures shows United Capital Plc issued Commercial paper at a discount rate of 9.20 percent; MTN Nigeria Communication, N127 billion at 9.20 percent; DUFIL PRIMA Foods Plc N30 billion, at a discount rate of 10 percent; FBN Quest Merchant Bank Limited N38.20 billion at a rate of 9.50 percent; Neveah Limited N7.84 billion, at a rate of 15.60 percent; Mixtal Real Estate Plc N22.60 billion, at a rate of 13.20 percent; Coronation Merchant Bank Limited, N61.20 billion at a rate of 9.10 percent, and others N186.70 billion at a rate of 11.50 percent.
Corporates also issued bonds with a total outstanding value of N13.5 billion which includes Eat & Go Finance SPV (N3.5 billion) a 7-year bond at 13.3 percent and Pat SPV Plc (GTD) (N10.0 billion)  a 10-year bond at 13.3 percent.
Bond market globally was resilient amid a hawkish tone by the Federal to tame rising inflation and the war between Russia and Ukraine.
On the home front, the Central Bank of Nigeria (CBN) hiked rates to subdue rising inflation caused by rising prices of diesel oil, surging prices of grains due to the war in the Middle East, and to fend off the effects of rising borrowing costs in the U.S and Europe.
The central bank’s monetary policy committee increased the rates to 13.0 percent from 11.50 percent.
In the last 2 years, bellwether firms in Africa’s largest economy have been taking advantage of a low yield environment to tap the bond market as they seek to pay existing debt, strengthen the balance sheet, and fund future expansion plans.
Dangote Cement Plc is considering a Eurobond or a local debt issue given the fact that N272.3 billion of its debt is on short term facility and will make a decision towards the end of the year on which fund raising it will embark upon,  its chief financial officer, Brian Egan.
The largest producer of building materials said in a statement that 70 per cent of its N389 billion, which is N272.3 billion, debt was short-term and from its parent firm, Dangote Industries Limited, and the company wanted to move away from that.
The Nigeria 10 year Government Bond has a 11.245 percent yield, according to World’s Government Bonds.
 The Nigeria credit rating is B-, according to Standard & Poor’s agency.
Analysts at Cordros Securities in a recent report expect higher yield in the face of elevated supply, a slowdown in borrowing due to business uncertainties surrounding the 2023 elections and supply imbalance given the government borrowings are expected to exceed the budgeted amount by 33.50 percent at N2.39 trillion.
Their baseline expectation is that the yields on Treasury bills and Treasury bonds will settle between the band and 13.50 percent respectively by the end of 2022.
And there are indications the central bank may adopt a hawkish tone for a while since inflation is not slowing down.
Higher borrowing cost causes rotation from equity to bonds because companies will have their profit squeezed by interest expenses.