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It is glaring that volatility in yields and rising interest rates have made Nigeria’s largest companies wary of the bond market as they opted for commercial papers to fund their short term cash needs.
The largest firms raised as much as N120.50 billion in the year ended December 2023 , which is down 61.50 percent compared to the same period in FY22 (N440.70 billion), according to data gathered by Afrinvest Securities Limited.
It is noteworthy the numbers of issuances were down to 5 in 2023 from 13 the previous year, according to data from the research house.
“First City Monument Bank Group Plc and Flour Mills of Nigeria that raised N46.70 billion and N46 billion were the top issuers,” said analysts at Afrinvest Securities.
Experts say worse than expected inflation report has complimented issuers plans to tape the market as the central bank continues to hike interest rates to tame price increases.
Of course, the slowdown in deals laid bare the economic downturn and volatility in the fixed income market, and more worrisome is that foreign investors are not interested in the equity market.
Nigeria’s headline inflation rate increased to 28.2 per cent in November showing a 0.87 per cent points increase over the 27.33 per cent recorded in October, according to data from the National Bureau of Statistics (NBS).
Nigeria 10 year bond yield was 14.39 percent on Friday December 29, 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 17.31 in February of 2015.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria has increased its benchmark interest rate (MPR) for the third time this year by 50 basis points to 18.5% in its recently concluded MPC meeting.
“The yield movement has been adverse and volatile so companies may be waiting for that to come under control. That is why bond issuances have been slow,” said an analyst who does not want his name mentioned.
Volatility in the fixed income market in 2024 on the back of aggressive tightening stance by the central bank and government borrowings means there is going to be a slowdown in corporate issuances.
The fixed income market should remain characteristically volatile in 2024FY as a combination of factors should pressure market yields upwards and downwards intermittently, according to analysts at Cordros Securities Limited.
“The demand-supply imbalance is expected to be the outsize driver of market activities as supply levels will remain significant given the government’s borrowing needs,” said analysts at Cordros Securities.
“Our baseline expectation is that the average yields on Treasury bills and bonds will settle at 12.0 percent and 16.5 percent by the end of 2024FY,’’ said analysts at Cordros Securities.
Analysts at the investment house expects the Monetary Policy Committee (MPC) of the central bank to maintain a tight policy stance and increase the policy rate by 300bps to 21.75 percent – the highest point on record since data compilation started in 2006
Companies who are in dire need of capital to fund expansion plans and working capital requirements opted for short term funding such as commercial papers.
Commercial papers issuance by firms jumped by 34.47 percent to N900.80 billion in 2023 from N670 billion as at December 2022, driven by increased borrowing cost via bonds and banks, according to data from Afrinvest Securities.
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