Corporate Debt Market Falters Amid High-Yield Environment in 2024
Nigeria’s corporate debt market saw a pronounced slump in 2024, as both the number of issuances and the total funds raised through commercial papers (CPs) and corporate bonds fell sharply. Industry reports from FMDQ and Afrinvest Securities reveal that the elevated yield environment, driven by hawkish monetary policies, severely constrained corporate borrowing.
Commercial paper issuances dipped by 5% to 133 in 2024, compared to 140 the previous year. The amount raised dropped even more significantly, falling 12.2% to ₦790 billion from ₦900 billion in 2023. The average discount rate for CPs rose sharply to 27% from 16.4%, making borrowing more expensive for corporations.
Corporate bonds faced an even steeper decline, with the number of issuances plummeting to just one in 2024 from four in 2023. The amount raised tumbled by a staggering 98.8% to ₦1.2 billion from ₦94.5 billion in the prior year. The average coupon rate for bonds rose to 18%, up from 15.7% in 2023.
Key Players in the Commercial Paper Market
Notable issuers in the CP space included Dangote Cement and Dangote Sugar Refinery, which led the market with five and four issuances, raising ₦141.8 billion and ₦119.4 billion, respectively. Flour Mills followed closely, securing ₦104.1 billion from four CP issuances, while Dufil Prima Foods raised ₦52.3 billion through five issuances.
Other significant players included Coronation Merchant Bank (₦32.4 billion), Coleman Technical Industries (₦30 billion), and TGI Foods SPV Plc (₦29 billion). Daraju Industries stood out for issuing the highest number of CPs—12 in total—but raised a more modest ₦18.2 billion, representing 2.3% of the year’s total CP issuances.
Rising Costs and Dwindling Appetite for Bonds
The corporate bond market’s contraction reflected the soaring cost of borrowing. Eat & Go Finance SPV Plc’s February issuance, rated BBB- by GCR and DataPro, was the sole corporate bond of the year, with a coupon rate of 18%.
The Role of Monetary Policy
The Central Bank of Nigeria’s (CBN) aggressive monetary tightening was a major factor behind the decline. The Monetary Policy Committee raised interest rates by over 800 basis points in 2024, bringing the rate to 27.5% as part of its battle against inflation. This high-interest regime pushed borrowing costs to unsustainable levels for many businesses.
Dele Kelvin Oye, National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, criticised the CBN’s approach, stating that interest rates peaking at 35-40% were “crippling businesses” and undermining economic growth.
“The central bank’s high-interest regime, coupled with bond yields exceeding 20%, has incentivised banks to prioritise bond investments over lending to businesses, discouraging entrepreneurship and stifling growth,” Oye said.
Consumer and Sectoral Credit Trends
The CBN’s latest economic report highlighted a decline in loan appetite among Nigerians, with consumer credit outstanding dropping for three consecutive months to ₦3.5 trillion in October 2024, a 17.64% month-on-month decline. Personal loans accounted for 68.95% of total consumer credit, down from 74.14% in the previous month.
Sectoral credit utilisation also fell by 5.13% to ₦58.37 trillion in October, reflecting broader economic strains.
Outlook
As Nigeria enters 2025, analysts are closely watching for signs of monetary easing that could lower borrowing costs and revive corporate debt markets. However, with inflationary pressures still a concern, businesses may continue to face a challenging financing environment in the near term.
