Local Corporates Taking Advantage of the Low Yield Environment


Tuesday, February 11, 2020   /10:49 AM  / By CSL Research / Header Image Credit: epthinktank


Corporate issuers appear to be taking advantage of the unorthodox policies of the Central Bank of Nigeria (CBN) to  raise funds from the local debt market and reduce refinancing risk. The disenfranchisement of local investors from investing in OMO bills has pushed yields on treasury bills and bonds significantly lower to single-digit levels, as increased demand for those securities spiked on the back of liquidity glut emanating from maturing OMO bills.  We highlight that Treasury Bills stop rate at the primary market auction over a three month period has declined sharply from 12.94% before the announcement was made to 3.5% at the last auction.                 


Two companies in the consumer goods space; Nigerian Breweries and Flourmills have been in the market to raise a combined sum of N65billion in the form of commercial paper and bond issuance.  On one hand, Flourmills is in the market (offer closes today) to raise N20bn under its N70bn Bond issuance programme. The N20bn offer is in 2 tranches viz: Tranche A (Tenor: 3-years, Indicative Yield: 9.70% - 10.00%), and Tranche B (Tenor: 5-years, Indicative Yield: 10.85% - 11.10%). According to Management, the proceeds will be utilized in restructuring the company's existing debt of N112.56bn as of 9M 2019. 


Nigerian Breweries Plc (NB) on the other hand, was in the market (offer closed on Friday) to raise N45bn via Commercial Paper (CP) offer under its N100bn CP programme. The offer was split across two tenors: 180-day tenor (Series 5, N15bn) priced at a yield of 5.0% and 270-day (Series 6, N30bn) priced at a yield range of 6.2% - 6.75%. Union Bank also recently issued CPs to raise N20bn.       

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The year 2019 saw corporate debt issuance rise significantly to N637bn in 2019 (the highest quantum since 2014), split between corporate bonds (20%) and commercial papers (80%). We believe 2020 would be another record year as corporates seek to take advantage of the lower yield environment occasioned by the liquidity glut expected to characterise the market in H1 from maturing OMO bills.

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