Yield Jump Risks Sale Spree for Nigerian Firms Lapping Up Funds

LAGOS (Capital Markets in Africa) — Rising yields in Nigeria may curb companies’ enthusiasm for issuing short-term debt after a year of record sales.

An increase in government borrowing costs may hit a funding source that’s allowed companies in Africa’s biggest oil producer to boost working capital and refinance costly loans amid an economic downturn.

The yield on naira-denominated 1-year Treasury bills rose to 3.2% last week in anticipation that monetary-policy stimulus has approached its limits. That’s an increase from as low as 0.15% last month as central bank steps to limit access to its so-called OMO securities boosted demand for alternative investments and pushed rates lower.

On Monday, lender FCMB Group Plc said it had suspended plans to issue 30 billion naira ($79 million) of 260-day notes, intended to support working capital.

Companies “will have to rethink and possibly suspend plans to issue short term notes,” Lanre Buluro, director of sales at Lagos-based investment bank Chapel Hill Denham, said by phone. “Corporates looking to do bonds will have to temper their price expectations.”

Firms have issued a record volume of short-term corporate debt, or so-called commercial paper, in 2020, pouncing on cheap funding as the central bank looked to temper Nigeria’s second recession in four years. Sales rose to about 750 billion naira as of November, according to Chapel Hill, from 467.6 billion naira last year.

Another lender, United Capital Plc issued 15 billion naira of 270-day bonds at 1.26% last month, compared with rates on bank loans that vary from 11% for large customers to more than 28% for smaller businesses.

“Three weeks ago, an A-rated corporate could have issued debt at low to mid-single digits for a five- or seven-year paper,“ Buluro said. “If they are coming out now, they will price in the mid to high single digits.