Nigerian companies who are wary of rising interest rates and macroeconomic challenges have slowed down the pace of borrowing from the bond market to fund their expansion plans.
There were 13 corporate bond issuances with a total value of N170.80 billion in 2022, which is 24.90 percent lower than 2021’s N227.50 billion in 10 issuances, according to data from Afrinvest Securities.
The biggest issuances were Geregu Power (N40.10 billion), Presco, (N34.50 billion), and LFZC (N25.0 billion).
Analysts say rising bond yields in 2022 was due to an aggressive hike in interest rate by the Central Bank of Nigeria (CBN) who seeks to tame stubborn inflation as the war between Russia and Ukraine led to a rally in energy prices which forced central bankers across the globe to adopt an aggressive monetary policy stance.
Of course, a low interest rate from 2019 to 2021 was propitious for firms to borrow money to bolster working capital, refinance existing debts, and fund future expansion plans.
The Nigeria 10 year government bond has a 13.819% yield as of January 1, 2023, according to data from World Government Bonds.
That compares to a yield of 4.59% as of October 19, 2020, according to data from World Government Bonds.
The Central Bank of Nigeria lifted its monetary policy rate by 100 bps to 16.5% at its November 2022 meeting, following a 150bps hike in September, matching market expectations.
Nigeria’s inflation rose to 21.47% in November from 21.09% recorded in October, representing the 10th consecutive monthly increase since the start of the year.
The average corporate bond yield rose to 14.60 % from 12.10 percent. Average commercial papers rose to 15.10% from 11.25%, according to data from Afrinvest Securities.
Some analysts expect interest rates to moderate in 2023 on the back of inflation peaking, and that will lead to a reduction in bond yields needed to spur corporate borrowing.