The year 2024 witnessed a notable decline in both the issuance and value of commercial papers (CPs) and corporate bonds in Nigeria, a trend largely attributed to the prevailing high-yield environment. This scenario, documented by FMDQ and Afrinvest Securities, reflects the impact of monetary policies aimed at curbing inflation, which inadvertently increased borrowing costs for businesses. Commercial papers, typically short-term debt instruments used by corporations to finance immediate liabilities, saw a 5% decrease in the number of issuances, dropping from 140 in 2023 to 133 in 2024. The total value of CPs issued also fell by 12.2%, from N900 billion to N790 billion, while the average discount rate surged to 27% from 16.4% in the previous year. This rise in discount rates made CPs a more expensive financing option for businesses.
Despite the overall decline, certain companies remained active in the CP market. Dangote Sugar Refinery and Dangote Cement led the pack, issuing five and four CPs respectively, raising N141.8 billion and N119.4 billion. Other significant players included Flour Mills, Dufil Prima Food, Coronation Merchant Bank, Coleman Technical Industries, TGI Foods SPV Plc, Lagos Free Zone Company, Mecure Industries, JohnVents Industries, and Daraju Industries. Daraju Industries notably issued the highest number of CPs (12) during the year, raising N18.2 billion. Several other companies, including Fidson Healthcare Plc, Skymark Partners, Valency Agro Nigeria, and C&I Leasing, also tapped into the CP market for varying amounts.
The corporate bond market experienced an even more dramatic downturn. The number of issuances plummeted from four in 2023 to just one in 2024, and the amount raised crashed by a staggering 98.8%, from N94.5 billion to a mere N1.2 billion. This decline was accompanied by a rise in the average coupon rate from 15.7% to 18%, making bond issuance costlier. The sole corporate bond issued in 2024 was by Eat & Go Finance SPV Plc in February, carrying a coupon rate of 18% and a BBB- rating from both GCR and DataPro. The challenging environment for bond issuance mirrored the difficulties faced by companies seeking funding through commercial papers, highlighting the broader impact of the high-interest rate regime.
The Central Bank of Nigeria (CBN) pursued an aggressive monetary policy throughout 2024, hiking interest rates by over 800 basis points to 27.5% in an effort to combat inflation. This hawkish stance, while intended to stabilize the economy, significantly increased borrowing costs for businesses. The private sector voiced concerns about the detrimental impact of these high rates on business operations and growth. Dele Kelvin Oye, the National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), criticized the CBN’s policy, arguing that it was detached from the realities of the business environment and hindering economic growth by incentivizing banks to invest in high-yield government bonds rather than lending to businesses.
This sentiment was further substantiated by the CBN’s own economic report, which revealed a declining appetite for loans among Nigerians for three consecutive months, from August to October 2024. Consumer credit outstanding dropped significantly during this period, indicating a shift towards loan repayment rather than new borrowing. This trend was driven by declines in both personal and retail loans, with personal loans still dominating the consumer credit landscape, albeit at a reduced share compared to the previous month. The decline in credit utilization further underscores the impact of the high-interest rate environment on borrowing behavior, as individuals and businesses became more cautious about taking on new debt.
In summary, the Nigerian debt market in 2024 was characterized by a significant contraction in both commercial paper and corporate bond issuances, driven primarily by the CBN’s aggressive interest rate hikes aimed at controlling inflation. While this policy may have achieved its intended goal of curbing inflation, it also created a challenging environment for businesses seeking to raise capital through debt instruments. The high cost of borrowing discouraged both companies and individuals from taking on new debt, leading to a decline in credit utilization and a focus on loan repayment. This situation raised concerns about the potential negative impact on economic growth and investment, highlighting the complex trade-offs involved in managing monetary policy in a dynamic economic environment.
