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Nigerian Companies Raise N288.30bn Commercial Paper in 2021

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Issuance of short-term corporate debt has spiked as firms took advantage of the low rates to refinance expensive loans and bolster working capital.

So far, firms have raised N228.30 billion through commercial paper, according to data gathered by CSL Stock Brokers Limited.
More than N80.1 billion was issued in corporate commercial paper in 2020 from N467.6 billion in 2019, according to Chapel Hill Denham.

Commercial paper is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities. Maturities on commercial paper typically last several days, and rarely range longer than 270 days. They are usually issued at a discount.

But rising bond yields since the start of the year signals the end of low rates which many issuers took advantage of to refinance existing debts.

“Corporate debt issuances declined significantly in the first half  (H1) 2021, due to higher borrowing rates and low liquidity,” said analysts at CSL Stockbrokers.

“The dynamics are unlikely to change in H2, as yields will likely remain elevated,” said the analysts.

Nigerian Breweries, Dufil Prima, Coronation and Fidson, adjusted their yields upward in a bid to raise a combined sum of 70 billion naira
MTN Nigeria floated N73.50 billion commercial papers while Parthian Partners Limited issued N20 billion. Others are FBN Quest, (N7.30 billion); Valency Agro Nigeria, (N5.10 billion); Mixa Real Estate, (N4.70 billion), and Fidson Healthcare, (N4.50 billion).
In 2020, the central bank’s decision to restrict purchases of some short-term papers triggered a surge in liquidity that sent yields on short- and long-term bond crashing.

The Nigeria 10 Years Government Bond has a 12.652 percent yield as at July 17 2021, according to data from FMDQ website.
That compares with a minimum yield of 4.048 percent as at November 3, 2020. And it reached a maximum yield of 15.856 percent in December 4, 2018.

Inflation and interest rates determine the direction of bond yields as they are subject to expectations. When inflation and interest rate rises, prices fall, vice versa.

Inflation moderated to 17.75 percent in June, the third consecutive, according to recent data from the National Bureau of Statistics (NBS).
Over the first half of the year, the Monetary Policy Committee (MPC) held the rate constant at 11.5 percent.

“With growth projected to strengthen for the rest of the year and inflation expected to further decline, the CBN might progressively re-direct its policy to a hawkish stance, in favour of exchange rate stability,” said analysts at CSL Stock Brokers.

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