GCR Ratings: Nigeria to see robust corporate debt issuance in 2023

Nigeria's corporate debt capital markets are poised to remain robust in 2023, following a record level of issuance in 2022. GCR Ratings, a leading ratings firm, expects a strong pipeline of new issuances over the next 12 months after 1.5 trillion-naira local currency debt instruments were issued last year. Akintunde Majekodunmi, the CEO of GCR Ratings, recently discussed the driving factors behind the surge in corporate debt issuance and shared insights on key trends shaping the Nigerian capital market. In 2022, Nigerian corporates issued a total of 1.5 trillion-naira in debt capital, comprising commercial paper and bonds. Commercial paper issuances, which cater to short-term funding needs, saw a significant uptick as companies sought to manage inconsistent cash flows and navigate challenges such as inflation, fuel costs, and supply chain disruptions. Bond issuances were primarily driven by large-scale projects, with companies like Dangote Industries, Dangote Cement, MTN, Lagos Free Zone, Gerigou Power, and Presco issuing bonds for various expansion and development initiatives. The implementation of Basel III, an international regulatory framework for banks, is expected to deepen Nigeria's capital markets. Basel III's focus on capital and liquidity requirements will incentivize banks to issue debt instruments such as additional tier 1 and tier 2 securities, while also encouraging investments in corporate bonds. This move is set to enhance the overall resilience and stability of Nigeria's financial system. Furthermore, Nigerian corporates are increasingly turning to local currency debt issuance instead of foreign borrowing due to challenges related to foreign currency scarcity and weakened correspondent banking relationships. Accessing foreign currency has become costly and complicated for many companies, prompting them to opt for local currency borrowing as a more viable alternative. Looking ahead to 2023, Akintunde Majekodunmi anticipates continued strong issuance in the corporate debt market. Factors driving this trend include favorable market conditions resulting from a recent yield crash, increased liquidity, and evolving product offerings such as green bonds, asset-backed securities, and tiered debt instruments. The expected leadership changes in corporate Nigeria will also play a role in shaping funding decisions and fostering a conducive environment for debt capital raising. In conclusion, the outlook for Nigeria's corporate debt capital markets in 2023 remains positive, with a steady flow of new issuances expected to drive growth and investment in various sectors. The shift towards local currency debt, coupled with regulatory enhancements like Basel III, is poised to strengthen the resilience and competitiveness of Nigeria's financial landscape. As companies adapt to evolving market dynamics and explore innovative funding options, the stage is set for continued vibrancy in the Nigerian corporate debt market.