Nigerian Bond Sales Head for Blockbuster Year as Yields Drop

(Bloomberg) -- Nigerian companies are poised to raise a record amount of local short-term debt, joining one of the biggest global junk-bond rallies in two months as businesses take advantage of a drop in borrowing costs.

Companies including Dangote Cement Plc, Union Bank of Nigeria Plc and MTN Group Ltd. have tapped the domestic market this year to refinance existing debt or boost working capital. It comes as firms from casino operators and retailers to lenders and restaurant owners across the U.S., Europe and Asia borrow fresh funds on the back of central bank stimulus.

“With the momentum we have seen, it’s likely the offers will exceed 2019,” said Omotola Abimbola, a fixed-income analyst at Chapel Hill Denham Securities Ltd. “A lot of issuers are taking advantage of the attractive market.”

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The Lagos-based brokerage estimates that Nigerian companies last year raised a record 509 billion naira ($1.3 billion) as businesses sought funds to expand after the 2016 economic contraction. A lockdown to curb the spread of the coronavirus is spurring increasing demand from companies this year to plug financing shortfalls caused by a decline in economic activity.

In the five months through May, companies have issued 35 commercial notes amounting to 389 billion naira, according to FMDQ Securities Exchange in Lagos.

Yields on Nigerian debt have dropped since the central bank last year barred individuals and non-bank institutions from buying short-term securities in its Open Market Operations. The yield on the government’s benchmark bond due in 2049 dropped to 12% on Tuesday, compared with 14.8% when it was issued in April last year.

Companies are seeking alternatives to bank loans which vary from 15% for large customers to more than 30% for smaller businesses, as lenders factor in higher costs and risks when pricing loans, according to central bank data. It also comes after bank lending in April plunged by a record with investors and analysts questioning stringent cash-reserve requirements among the highest in developing markets.

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Dangote Cement, controlled by African richest man, Aliko Dangote, in April raised 100 billion naira of 175-day and 266-day notes in May at 5% and 6%, the biggest offering of its kind at the time. That compares with 12.65% it paid for 38 billion naira of debt of a similar tenure in 2018. On June 9, MTN Nigeria Communications Plc said it raised 20 billion naira of 180-day debt in its local bond-issuance debut at 4.90%, and 80 billion naira of 270-day debt at 5.95%. The local unit of Africa’s largest mobile-phone network operator doubled its issuance after demand was four times higher the amount of securities on offer.

“Given that there’s demand for the debt securities from investors, companies are using the opportunity to meet their funding needs,” Abimbola said.

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