Market News

Nigerian Firms Feeling the Heat as Interest Rates March Higher - BLOOMBERG

MAY 23, 2024
  • Rate hike to chill corporate borrowing, Afrinvest says
  • Nigerian local bonds yields rise after latest rate hike

BY Emele OnuBloomberg News

, Bloomberg

(Bloomberg) -- Nigeria’s aggressive interest-rate hikes are crimping commercial paper issuance in the West African nation, even as local currency weakness makes foreign borrowing more costly in naira terms.

The Central Bank of Nigeria delivered its third rate increase this year on Tuesday, lifting the policy rate to 26.25% for a cumulative increase of 750 basis points so far in 2024 to curb inflation near a three-decade high and shore up the battered naira.

Companies are seeing that translate into tighter domestic credit conditions.

Dangote Sugar Refinery Plc, owned by Africa’s richest man Aliko Dangote, is looking to tap the local short-term debt market for 150 billion naira ($103 million) at 21.2%. In February, it paid 17.08%, while sister company Dangote Cement Plc raised debt of similar tenor last year at 12.7%.

“It will take a desperate issuer to approach the market at these levels,” said Abiodun Keripe, managing director at Lagos-based Afrinvest Research and Consulting. “I could estimate a 45%-55% contraction in commercial paper issuances this year.”

Naira-denominated bond yields rose after the latest rate hike. The average yield for the Bloomberg Nigeria local sovereign index, which tracks fixed-rate naira securities, rose 18 basis points to 18.87%, the highest since May 6.

Higher borrowing costs and the weakness of the naira, which has plunged more than 60% against the dollar since currency controls were eased last year, is weighing on corporate balance sheets.

Dangote Sugar’s finance costs surged more than 20-fold to 201.7 billion naira last year, which led the firm to report its first annual loss of 73.8 billion naira.

“You’re likely to see a higher interest expense this year compared to last year, which will then weigh on companies’ profits,” said Omobola Adu, an analyst at London-based BancTrust & Co. Investment Bank. “Most companies might pause plans to issue debts or if they go ahead to issue, the size will not be as high as they initially planned.”


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