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Firms borrowed N258.59bn from bond market amid COVID-19 – SEC

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Securities-and-Exchange-CommissionMore companies tapped the Nigerian bond market in 2020 amid the COVID-19 pandemic as they raised a total of N258.59bn, the highest on record, according to data from the Securities and Exchange Commission.

The SEC data showed that the corporate bonds issued in 2020 rose by 45.91 per cent from the N177.22bn raised in 2019, as companies leveraged the low yield environment to fund expansion objectives and pursue debt refinancing.

The companies that issued bonds last year included Flour Mills of Nigeria Plc, Dangote Cement Plc, United Capital Plc, Coronation Merchant Bank, Axxela Limited, Nigeria Mortgage Refinance Company Plc, FBNQuest Merchant Bank Limited, TSL SPV Plc and Cardinalstone Financing SPV Plc.

A bond represents a long-term financial obligation (debt) of an entity. It is a debt investment in which an investor loans funds to the entity who borrows the funds for a defined period of time at a variable or fixed interest rate.

The borrower commits to pay a specified sum of money periodically (coupon) as well as repay the principal at stipulated future dates.

Corporate bonds, according to FMDQ Securities Exchange Limited, are long-term debt securities issued by corporations in order to raise finance for a variety of reasons, from building facilities and purchasing equipment to expanding their businesses.

It said, “Corporate bonds are usually characterised by higher yields than government bonds because there is a higher risk of a company defaulting than a government.

“They, however, can also be the most rewarding fixed-income investments because of the risk the investors must take on.

“A corporation’s credit quality is very important as the higher the quality, the lower the interest rate the investors receive.”

 

The Group Managing Director/Chief Executive Officer, NGX Group Plc, Mr Oscar Onyema, had said in January that capital-raising activities in the fixed income market increased significantly in 2020.

He said the then Nigerian Stock Exchange’s bond market capitalisation rose by 35.52 per cent from N12.92tn in 2019 to N17.50tn, with the Federal Government dominating issuances.

PwC Nigeria noted in a recent report that activities in the domestic bond market increased significantly last year as corporates continued to take advantage of the relatively low yields in the market to refinance existing debts and fund business expansion, amongst others.

It said, “It is expected that corporates will continue to take advantage of the low interest rates and the huge market demand for relatively higher yields in the bond market.

“However, given that market conditions are highly unpredictable, time to market is very important for corporates wishing to capitalise on this window of opportunity.”

FMDQ Securities Exchange said corporate institutions continued to successfully tap the Nigerian debt capital markets to access stable short, medium and long-term finance to fund key activities in their organisations.

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