LAGOS, MAY 7, 2018 – Nigeria’s securities regulator is preparing for record bond issuance from companies seeking to benefit from lower interest rates and an economy on the mend.
The bond bonanza comes as Africa’s biggest oil producer recovers from a 2016 contraction, with the International Monetary Fund predicting an expansion of 2.1 percent this year. It will also mark a turnaround from last year when corporate bond sales tumbled to a four-year low as the government ramped up borrowing to fund its spending plans. That flooded the market, drove up borrowing costs, deterred businesses and curbed demand for riskier debt.
Companies could raise 200 billion naira ($554 million) of bonds in 2018, almost double the all-time high set two years ago, the Securities and Exchange Commission said in an emailed response to questions. Five companies have already submitted plans for debt sales totaling 60.5 billion naira, it said.
The funds are being earmarked for infrastructure projects including rail, roads and power, as well as to create capital buffers, the Abuja-based regulator said. Improved liquidity on the Nigerian Stock Exchange and FMDQ OTC Securities Exchange is also encouraging firms to sell more debt securities, it said.
Bank loans “may not be enough” for companies seeking to raise cash to expand, meaning businesses will have to be “substantially financed” in the corporate bond market, said Abubakar Jimoh, the chief executive officer of Lagos-based Coronation Merchant Bank.
The investment bank plans to issue its first tranche of a 100 billion-naira debt program this year, he said in an interview, predicting that at least four of his peers will sell bonds in 2018 to increase their lending capacity.
The Nigerian bond market is big enough “to accommodate the size of the offers” expected this year, Jimoh said. Besides, there is “very massive” demand from local pension, insurance and asset-management companies as well as foreign investors for Nigerian assets, he said.
