‘Commercial papers, corporate bonds issue dipped in 2024’

The number of commercial papers and corporate bonds issued in 2024 declined just as the amount raised via these instruments dipped on the back of a high-yield environment.

This was disclosed in the monthly reports of the FMDQ and asset management firm Afrinvest Securities in its 2024 review and 2025 outlook report.

Commercial papers are usually short-term debt instruments issued by corporations. It is often used to finance short-term liabilities such as payroll, accounts payable, and inventories.

Corporate bonds are debt obligations, like an IOU. Investors who buy corporate bonds are lending money to the company issuing the bond. In return, the company makes a legal commitment to pay interest on the principal and, in most cases, to return the principal when the bond comes due or matures.

In 2024, the number of commercial papers issued dipped by five per cent to 133 from 140 in 2023. The amount issued also declined. It dropped to N790bn from N900bn, indicating a 12.2 per cent dip. The average discount rate also increased to 27 per cent from 16.4 per cent in the previous year.

Dangote companies such as Dangote Sugar Refinery and Dangote Cement topped the list of top CP issuances in 2024 at five and four issuances to raise N141.8bn and N119.4bn, respectively.

Other top players in the CP space include Flour Mills, which raised N104.1bn from four issuances; Dufil Prima Food issued five CPs to raise N52.3bn; Coronation Merchant Bank issued two CPs to raise about N32.4bn; Coleman Technical Industries raised N30bn from 4 CP issuances.

TGI Foods SPV Plc issued two CPs with which it raised N29bn; Lagos Free Zone Company also issued two CPs to secure N24.1bn additional funding; Mecure Industries issued four commercial papers to raise N21.9bn; JohnVents Industries issued two papers to get N18.8bn; and Daraju Industries issued the highest number of commercial papers in the year, 12, to raise N18.2bn, which is about 2.3 per cent of the total CP issuances in the year.

The likes of Fidson Healthcare Plc, Skymark Partners, Valency Agro Nigeria, and C&I Leasing issued three, nine, three, and one CPs to raise N17.3bn, N10.7bn, N9.4bn, and N8.1bn, respectively.

Similarly, in the corporate bonds space, issuances became costlier than the previous year, which has seen the number of issuances drop to 1.0 from 4.0 and the amount raised crash to N1.2bn from N94.5bn in 2023, a 98.8 per cent plummeting as the average coupon rate rose to 18 per cent from 15.7 per cent. It has an outstanding value balance of N1.15bn.

The top corporate bond issuance in 2024 was that of Eat & Go Finance SPV Plc, issued in February 2024 with a coupon rate of 18 per cent. It was rated BBB- by both GCR and DataPro.

The PUNCH reports that the Monetary Policy Committee of the Central Bank of Nigeria had maintained a hawkish stance throughout 2024 as it hiked rates by more than 800 points to 27.5 per cent to tackle inflation. This high-interest environment had expectedly increased the cost of borrowing for businesses. This situation was bemoaned by players in the private sector who said it was crippling businesses.

Speaking at an event in 2024, the National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, Dele Kelvin Oye, said there was a disconnect between the CBN’s hawkish stance and the needs of the economy.

He said, “High interest rates—peaking at 35-40 per cent—reflect a central banking system that appears disconnected from the needs of its populace and businesses. The Nigeria 10-year Government Bond Yield reached an all-time high of 21.25 per cent in August 2024. The central bank’s high-interest regime, coupled with bond yields exceeding 20 per cent, led local banks to prefer investing in bonds over supporting businesses. This trend discourages entrepreneurship and diminishes economic growth.”

Also, the latest economic report released by the Central Bank of Nigeria indicated that the appetite of Nigerians for loans declined for the third consecutive month in October.

According to the report, Nigerians have been focusing more on loan repayment since August, which saw the consumer credit outstanding decline by 3.70 per cent to N4.69tn in August, then N4.25tn in September before settling at N3.50tn at the end of October 2024, indicating a 17.64 per cent dip month-on-month.

At the end of October, the report said that the decline in consumer credit outstanding followed the decline in personal and retail loans to N2.41tn (-23.49 per cent) and N1.09tn (-0.91 per cent), from N3.15tn and N1.10tn, respectively, in September.

Personal loans maintained their dominance, accounting for 68.95 per cent of total consumer credit, albeit lower than the 74.14 per cent in the preceding month, while retail loans constituted the balance.

Similarly, the report indicated that sectoral credit utilisation moderated by 5.13 per cent to N58.37tn compared with N58.57tn in the preceding month.