Nigeria companies are carrying trillions of Naira in debt on their books due to rising inflation that requires increased financing for capital expenditure as well as impact of currency devaluation on foreign currency denominated loans.
For the first six months through June 2024, non-financial corporate businesses held over N9 trillion in debt on their books—a record in Naira terms, according to data gathered by MoneyCentral.
There are concerns that elevated interest rates indicate increased cost of debt as the central bank adopted a hawkish policy tone to help rein in price rises.
It is important to note that firms are paying more to service interest on money borrowed while the current high interest rate environment makes raising debt capital expensive.
It will be recalled that entities who needed funds to finance their working requirement and finance future expansion plans had tapped the debt markets a few years ago when interest rates were low.
Data gathered by MoneyCentral shows finance costs or interest expense for non-financial firms surged by 136.90 percent to N732.15 billion in June 2024 from N309.02 billion as banks continue to reprice loans to reflect current interest rate environment to compensate for their funding costs, especially as the lenders hope to sustain net interest margins to maintain profitability of the core business.
Nigeria 10 year bond yield was 21.04 percent on Tuesday August 13, according to over-the-counter interbank yield quotes for this government bond maturity. Historically, the Nigeria 10-Year Government Bond Yield reached an all-time high of 21.25 in August of 2024.
The country’s consumer prices rose 33.4 percent in July from 34.2 percent a month earlier, according to data published on the website of the National Bureau of Statistics (NBS).
The Monetary Policy Committee (MPC) of the central bank has increased the benchmark interest rate by 150 basis points from 24.75 per cent to 26.25 per cent.
“Rising debt in the books of non-financial companies may reflect both increased borrowings, as higher inflation requires more working capital as well as higher financing for Capex,” said Abiola Rasaq, a Lagos based analyst.
“In addition, firms which have foreign-denominated loans would have to reflect the higher exchange rate in the Naira-value of the FCY-denominated loans since their reporting currency is Naira and the loans are carried at fair value based on current exchange rate,” said Rasaq.
Analysis by MoneyCentral shows the consumer goods firms saw their total combined debt hit N2.17 trillion as many of them are exposed to currency risk.
Nestle Nigeria Plc is repricing foreign currency-denominated loans owed to parent company, Nestle South Africa. Debt owed to the parent company constitutes c. 91 percent of total debt, while the rest relates to import trade obligations for Letters of Credit.
Firms in the Industrial Goods industry have a combined total debt of N2.61 trillion, which is 43.26 percent higher than 2023’s N1.82 trillion.
Dangote Cement Plc, the most capitalised firm in Nigeria and the largest producer of the building materials, publicly issued bonds amounting to N266 billion as at 30 June 2024 (December 2023: ₦266 billion) with coupon rate of 11.25 percent to 13.5 percent. The tenure is between 3 to 10 years.
It issued commercial papers under a programme with a face value of N198 billion. The tenure is between 180 days and 270 days with discounts ranging from 14 percent to 21 percent.
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