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NSE Listed Manufacturers Can Meet Debt Obligations, For Now

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Interest coverage ratio for manufacturer’s listed on the Nigerian Stock Exchange (NSE) has strengthened, which means they can make good on their interest payments on time, even though the devastation caused by the coronavirus headwinds has dealt a great blow to profit margins.

The average interest coverage ratio for manufacturers across sectors stood at 47 times earnings as at the first quarter of 2020, which is higher than 1.50 times bench mark; a ratio lower than 1.50 signals danger and vulnerability.

Combined interest expenses or finance cost dipped by 16.24 percent to N39.54 billion as at March 2020 from N52.54 billion the previous year.

Cadbury, Nascon Allied, and GlaxoSmithKline do not have debt in their balance sheet.

The ratio is paramount to banks because it helps them know whether a company is in a position to honour its debt covenant. Corporate debts have been a burden to banks as they are reeling from rising Non Performing Loans (NPLs).

Many companies had restructured their loans in the aftermath of the 2016 recession, as they had raised capital via rights issue in order to settle obligations and bolster working capital.

If they had not raised capital to reduce debt, the coronavirus may have plunged many companies into bankruptcy.

Analysts have warned that the Global Standing Instructions (GSI) issued by the central bank which allows financial institutions to squeeze loan defaulters may hinder lenders from extending credit facilities to manufacturers.

Dangote Cement, the largest company by market capitalization in Africa’s largest economy, issued N100 billion bonds with a coupon rate of 12.50 percent, proceeds of which will be used to refinance its existing short term debt.

Included in the ₦100 billion bond issuance, Dangote Cement has a total debt of ₦393 billion. The short portion of the company’s debt (N230 billion) is 59 percent of total debt.

In addition to a strong operating cash flow, the company also has over N300 billion head room with existing commercial paper (CP) and bond programs to fund growth and eventually refinance short term debt.

The cement maker has limited foreign currency debt exposure, with just 24 percent of total debt exposed to the dollar.

Analysts said that corporate earnings will be pressured by the coronavirus pandemic except for sectors such as healthcare, technology, and household utilities.

Despite stimulus package announced by authorities aimed at easing impact of COVID-19 on businesses and households, domestic economic growth in the first quarter of (Q1-2020) slowed to 1.87 percent and the figure for the second quarter of (Q2 2020) is expected to be worse.

The Nigerian Stock Exchange All Share Index has shed -9.80 percent so far in 2020, as investors continue to underweight equities.

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