Record Bond Sales Await Nigeria as Firms Flock to Raise Debt

(Bloomberg) -- 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.

“Owing to the recent strong liquidity in the market, largely driven by the reduction in domestic borrowing and the consequent downward trend in rates, we expect to see an increase in corporate bond issuance in 2018,” Jimoh said. Coronation plans to raise short-term loans to fund trade deals between companies, while the bonds will help meet customers' project-finance needs, the CEO said.

Authorities raised dollar bonds late last year and in the first quarter with the aim of reducing naira borrowing, bringing down costs and encouraging companies to access the local debt market. That helped drive yields on local bonds down about 400 basis points since late August.

“The macro-economy is encouraging now,” creating the right conditions for a return to the bond market, C&I Managing Director Andrew Otike-Odibi said by phone from Lagos. C&I raised 700 million naira at about 16 percent in 2016, which was below 3 billion naira it had targeted because of the high costs.

Sterling Bank Plc has also revived its plans to sell bonds after abandoning a 65 billion-naira bond program in 2016 after being charged 16.5 percent for 7.9 billion naira of debt, which it considered too high. A drop in inflation to a two-year low bodes well for a sale later this year, Chief Executive Officer Abubakar Suleiman said. Inflation fell to 13.3 percent in March, below the benchmark rate of 14 percent.

“We're still watching the market closely and will only issue when rates moderate to acceptable levels,” he said. “With the recent inflation data, we expect to see improvement in interest rates in the coming months.”

--With assistance from Paul Wallace

To contact the reporter on this story: Emele Onu in Lagos at eonu1@bloomberg.net.

To contact the editors responsible for this story: Alastair Reed at areed12@bloomberg.net, Stefania Bianchi at sbianchi10@bloomberg.net, Vernon Wessels, Robert Brand

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