Corporate Debts Securities Issuances Muted despite Low Interest Costs

Corporate Debts Securities Issuances Muted despite Low Interest Costs

In spite of the Nigerian low interest rate environment, it appears that many companies have muted debts securities issuances despite relatively low interest cost compare with banks rates.

This development is against what happened last year when bellwether companies took to the debt market to raise funds for their operation amidst pressures in the economic space.

It was noted that a high numbers of big balance sheet companies began optimisation of their respective companies balance to reduce interest costs.

This, in part, affected many Nigerian banks, thus resulting to lower interest income as borrowers with strong credits standing found alternatives.

Excess liquidity has overtime keep rates down in the money as well as in the fixed income market while investors scramble for high returns.

Compare with government instruments, corporate issuances command higher rates and fixed income investors often double down on subscriptions.

But corporate issuances appeared to be on hold at the moment, while yields in the fixed income segment recorded an upward movement last week.

In their commentaries, analysts said this may be a new normal following the whirlwind of issuance in 2020 amidst the outbreak of coronavirus pandemic.

As a result of the Central Bank of Nigeria’s banned on certain financial market investors, liquidity in the system had been strong.

However, at the close of market last week, rates appeared to be rising, especially at the interbank segment.

In a market report, Meristem Securities detailed that despite the relatively low yield environment, activities on the corporate end of the market have been rather muted so far in the year.

Federal Government Redeems $US500 Million Eurobond

“We note however that several corporates have not yet commenced a new budget cycle, and that issuances typically fall within the second half of the year”, Meristem stated.

The only event of note was the conclusion of BUA Cement Plc.’s issuance of its ₦100 billion Series 1, 7.50% fixed rate bond.

The bond which is due in 2027 was oversubscribed by ₦37.82 billion.

Meanwhile, in the Federal Government redeemed its USD500 million, 6.75%-JAN-2021 Eurobond that was issued in 2011.

“This is a positive development which demonstrates Nigeria’s capacity to meet its obligations”, Meristem added.

In reaction, analysts said the market went bullish on Nigeria’s outstanding Eurobonds as yields declined across tenors following this development.

“We note that the next FGN Eurobond maturity is due in June 2022 with an outstanding value of USD300 million”, the firm added.

Considering the large-sized 2021 budget deficit at ₦5.60 trillion, the Federal Government plans to raise ₦2.50 trillion (USD6.60bn) from the international debt market this year.

“Although high debt servicing costs continue to cloud Nigeria’s credit outlook, the recent payout to Eurobond investors and the relatively improved oil revenue outlook should count towards a better credit rating and hence a lower cost of borrowing”, Meristem said.

Yields are making upward adjustment in the fixed income market, and this is expected to stay as the Central Bank of Nigeria’s seek to attract foreign investments.

Corporate Debts Securities Issuances Muted despite Low Interest Costs