The Nigerian Exchange Limited (NGX) witnessed a significant surge in corporate borrowings in 2024, with fifteen prominent companies accumulating a staggering N4.09 trillion in debt, more than double the N1.94 trillion recorded in 2023. This dramatic 110.3% increase reflects a complex interplay of factors, including expansionary strategies, operational needs, and the prevailing high-interest rate environment. The borrowed sums, categorized as non-current liabilities, represent long-term financial obligations extending beyond a one-year repayment period. Analysis of individual company performance reveals a mixed bag of rising debts, strategic deleveraging, and varying degrees of reliance on external financing.
Seplat Energy and Dangote Cement led the pack in terms of increased borrowing, recording substantial leaps to N1.41 trillion and N1.39 trillion respectively. Seplat’s debt more than doubled, surging by 135.1%, while Dangote Cement’s borrowings witnessed an even steeper climb of 256.9%. Nestlé Nigeria and BUA Cement also saw significant increases, with their debts rising by 49.4% and 50.5% respectively. These increases highlight the significant capital requirements of large-scale operations within the energy, construction, and consumer goods sectors. In contrast, some companies adopted a more cautious approach to debt management. Nigerian Breweries and Lafarge Africa significantly reduced their borrowing levels, with decreases of 17.7% and 57.7% respectively. These contrasting approaches underscore the diverse financial strategies employed by NGX-listed companies.
Further analysis of individual company borrowing patterns reveals a wide spectrum of debt management strategies. Dangote Sugar Refinery, for instance, experienced an astronomical 15,058% increase in borrowing, albeit from a relatively low base, while UAC of Nigeria saw a 334.9% surge. These significant percentage increases, while eye-catching, need to be considered in the context of the initial debt levels. Smaller companies like Fidson Healthcare and Neimeth also increased their borrowings, although at more modest rates of 14.8% and 4.5% respectively. FTN Cocoa Processors, another relatively smaller player, witnessed a substantial 124% increase in debt. This wide range of borrowing behaviors emphasizes the unique financial circumstances and strategies of individual companies.
Conversely, several companies actively pursued deleveraging strategies, reducing their reliance on borrowed capital. BUA Foods and Nascon Allied Industries decreased their borrowings by 47.4% and 48.3% respectively, while NGX Group implemented a significant debt reduction of 62.6%. These reductions reflect a conscious effort to strengthen balance sheets and reduce financial risk, potentially in response to the rising interest rate environment. The varied approaches to debt management – from aggressive borrowing to strategic deleveraging – highlight the complex financial landscape within which these companies operate.
Expert commentary from Segun Ajibola, former President of the Chartered Institute of Bankers of Nigeria, provides valuable context for interpreting these trends. Ajibola emphasizes the inherent nature of borrowing for operational companies, particularly those with high gearing ratios, which rely more heavily on debt financing. He notes that companies will continue to seek loans for expansion and production, provided they maintain a reasonable level of financial discipline. The key, he argues, lies in maintaining a healthy cash flow to service the debt obligations. However, he cautions about the compounding effect of interest, which can lead to escalating debt levels unless actively managed by both the borrowing company and the lending institutions.
Ajibola further explains that a company’s profitability and ability to pass on increased borrowing costs to consumers are crucial factors in determining its debt sustainability. He highlights Dangote’s substantial borrowing history, driven by both expansionary and operational needs, and emphasizes that continued profitability is essential for servicing such significant debt levels. Conversely, companies like Nigerian Breweries, with strong cash flows generated by high consumer demand, may have less need to rely on external financing. Ajibola’s insights underscore the critical importance of aligning borrowing strategies with a company’s specific operational context and financial health. He further emphasizes the need for strong cash-flow management and the ability to mitigate the risks associated with rising interest rates.
Finally, the impact of the high-interest rate environment and mounting debt levels is reflected in the soaring finance costs faced by nine listed Nigerian companies. These costs, which include interest expenses and other charges associated with borrowing, surged by a staggering 69% to N1.28 trillion in 2024, up from N757.65 billion in 2023. This significant increase in finance costs underscores the strain on corporate finances and the challenges posed by the prevailing economic climate. The upward trend in borrowing costs highlights the delicate balance companies must strike between accessing necessary capital for growth and managing the associated financial burdens. The overall picture that emerges is one of a dynamic and complex financial landscape within the NGX, characterized by diverse borrowing strategies, varying degrees of debt reliance, and the ever-present challenge of navigating a volatile economic environment.
