SEC sees N200bn corporate bonds issuance

 

The Securities and Exchange Commission (SEC) is preparing for record bond issuance from companies seeking to benefit from lower interest rates and an economy on the mend.
The Commission said in an emailed that companies could raise N200 billion ($554 million) of bonds in 2018, almost double the all-time high set two years ago, according to Bloomberg.
It noted that five companies have already submitted plans for debt sales totaling N60.5 billion, it said.
The bond bonanza comes as Africa’s biggest oil producer recovers from a 2016 contraction, with the International Monetary Fund predicting an expansion of 2.1 per cent this year. It will also mark a turnaround from last year when corporate bond sales tumbled to a four-year low as the government ramped up borrowing to fund its spending plans. That flooded the market, drove up borrowing costs, deterred businesses and curbed demand for riskier debt.
The funds are being earmarked for infrastructure projects including rail, roads and power, as well as to create capital buffers, the Abuja-based regulator said. Improved liquidity on the Nigerian Stock Exchange and FMDQ OTC Securities Exchange is also encouraging firms to sell more debt securities, it said.
Bank loans may not be enough for companies seeking to raise cash to expand, meaning businesses will have to be substantially financed in the corporate bond market, said Abubakar Jimoh, the chief executive officer of Lagos-based Coronation Merchant Bank.
The investment bank plans to issue its first tranche of a 100 billion-naira debt program this year, he said in an interview, predicting that at least four of his peers will sell bonds in 2018 to increase their lending capacity.
Dangote Cement Plc plans to issue N50 billion of bonds in the second half to fund an expansion and refinance debt. Wema Bank Plc plans to sell N20 billion of debt to bolster its capital levels after suspending the plan last year. C&I Leasing Plc is targeting a N7 billion issuance this quarter to purchase vehicles and meet increased demand.
“Owing to the recent strong liquidity in the market, largely driven by the reduction in domestic borrowing and the consequent downward trend in rates, we expect to see an increase in corporate bond issuance in 2018,” Jimoh said. Coronation plans to raise short-term loans to fund trade deals between companies, while the bonds will help meet customers’ project-finance needs, the CEO said.
Authorities raised dollar bonds late last year and in the first quarter with the aim of reducing naira borrowing, bringing down costs and encouraging companies to access the local debt market. That helped drive yields on local bonds down about 400 basis points since late August.
“The macro-economy is encouraging now,” creating the right conditions for a return to the bond market, C&I Managing Director Andrew Otike-Odibi said by phone from Lagos. C&I raised N700 million at about 16 percent in 2016, which was below N3 billion it had targeted because of the high costs.
Sterling Bank Plc has also revived its plans to sell bonds after abandoning a 65 billion-naira bond program in 2016 after being charged 16.5 percent for N7.9 billion of debt, which it considered too high. A drop in inflation to a two-year low bodes well for a sale later this year, Chief Executive Officer Abubakar Suleiman said. Inflation fell to 13.3 per cent in March, below the benchmark rate of 14 per cent.
“We’re still watching the market closely and will only issue when rates moderate to acceptable levels,” he said. “With the recent inflation data, we expect to see improvement in interest rates in the coming months.”