Global Credit Ratings: Corporate debt issuance in Nigeria to remain robust in 2021
Global Credit Ratings says it expects corporate debt issuance in Nigeria to remain robust all through the year with companies from Financial Services and Industrials as main issuers of the local currency debt.
Tue, 18 May 2021 15:00:46 GMT
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AI Generated Summary
- The surge in corporate debt issuances in Nigeria in 2020 was driven by factors such as low yields, challenging operating environment, expansion opportunities, and limited bank lending, pushing companies towards debt capital markets for funding.
- Despite the recent uptick in yields, the debt capital market remains a viable funding source compared to banks, given the high prime lending rates. The market is expected to maintain robust issuance levels in 2021, around a trillion Naira.
- Financial services and industrials are likely to continue dominating debt issuances in Nigeria, reflecting the need for funding among banks and the expansion strategies of industrial companies. The investor base, comprised of pension funds and asset managers, remains strong and supportive of the debt capital markets.
Global Credit Ratings CEO, Akintunde Majekodunmi, joined CNBC Africa to discuss the outlook on corporate debt issuance in Nigeria for 2021. The interview shed light on the factors driving the surge in corporate debt issuances in 2020 and provided insights into the trends expected to continue this year. In 2020, corporate debt issuance in Nigeria hit a record high of over a trillion Naira, equivalent to $2.7 billion. This spike was fueled by several key drivers. Firstly, the low yields in 2020, resulting from the Central Bank of Nigeria's restrictions on open market operations, made debt issuance more affordable for Nigerian corporates. Secondly, amidst the challenging operating environment due to COVID-19, companies sought to bolster liquidity and working capital to navigate uncertainties. Thirdly, the opportunity presented by low valuations prompted corporates to pursue expansionary strategies, with companies like Dangote Cement and MTN Nigeria leveraging debt markets for growth. Lastly, the restrained lending by banks, indicated by moderate loan growth rates, further pushed corporates towards debt markets for funding. While the surge in corporate debt issuances was significant in 2020, recent months have seen a gradual uptick in yields. However, the debt capital market remains a favorable funding source for corporations compared to borrowing from banks directly, given the relatively high prime lending rates in the banking sector. Looking ahead, Akintunde emphasized that the debt capital market is expected to remain robust in 2021, with continued issuance levels around a trillion Naira. Financial services and industrials are anticipated to retain their dominance in debt issuances, reflecting banks' need for funding and industrials' expansion strategies. The investor base in Nigeria, comprising institutional investors like pension funds and asset managers, remains strong and supportive of the debt capital markets. Pension fund assets grew by 17% to $32 billion, highlighting the potential for further growth and absorption of debt instruments in the market. Overall, the outlook for corporate debt issuance in Nigeria appears positive, driven by a combination of market dynamics, investor confidence, and growth opportunities in key sectors.
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