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Wednesday, March 29, 2023

Corporate Non Sovereign Issuances Set Record, Exceed N1 trillion in 2020

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Nigerian corporate non-sovereign issuance reached a record N1 trillion last year as companies took advantage of the low interest rate environment and buoyant system liquidity to shore up cash.

Firms have been drawing down billions from credit lines and other bank loans that act as a backstop to markets for short-term funding.

Funds raised in the Commercial Paper (CP) Market would be used for capital expenditure, working capital and general corporate purposes.

A total of N610.0 billion was raised in the form of commercial papers, according to data from FMDQ website.

Analysts say it is prudent for firms to raise liquidity-especially the ones that can take debt in their balance sheet- as the coronavirus pandemic brought part of the economy to a halt.

The Central Bank of Nigeria’s move to limit non-bank corporates from participating in its Open Market Operations (OMO depressed yields, allowing companies in diverse sectors to tap much needed financing while providing access to some of the cheapest funding ever seen.

Dangote Cement, the most capitalized company in Africa’s largest economy raised N100 billion, the largest ever commercial issuance in Nigeria.

The Cement maker has the financial strength to meet its obligations as it has a free cash flow of N154.26 billion and N1.84 trillion in total asset.

Other record issuances include: MTN Nigeria, (N100.0 billion), and Nigerian Breweries, (N91.20 billion respectively, according to data from FMDQ.

The lower cost of debt that spurred short dated debt was buoyed by the central bank heterodox policy actions which set the tempo for capital flows.

Matured bills issued in 2019 flooded the financial market, overloading the system with liquidity in 2020.

With sustained net OMO inflows, dearth of investment outlets, and rate cuts by the Apex bank, the stop rates across all tenors for treasury bills at the primary auctions rose from high digits in Jan 2020 to less than 1 percent.

That caused a rotation from the bond market into equity as investors shifted from risk free assets into riskier assets. The Nigerian Stock Exchange (NSE) All Share Index (ASI) closed 50.30 percent in 2020 to emerge the best performing among emerging market peers.

Analysts at United Capital said sentiment for stocks this year depends on the direction of monetary policy, particularly in relation to the yield environment.

“A sharp reversal of rates is likely to trigger a sell-off in the equities market considering that the current average market price-to-earnings (P/E) valuation multiple (15.2x) is considerably higher than the 5-year historical average (11.9x),” said the analysts.

Johnson Chukwu, managing director and CEO of Cowry Asset Management limited said there could be more demand for long dated debt like bonds this year.

Total corporate bond issue in 2020 stood at N152 billion, according to data from FMDQ.

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