Five quoted companies on the Nigerian Stock Exchange (NSE) last year raised and listed N55.965 billion in corporate bonds in the equities market and FMDQ OTC Securities Exchange, to assure long-term capital for their operations.
The companies are Flour Mills of Nigeria Plc, Union Bank of Nigeria (UBN) Plc, C&I Leasing Plc, Nigeria Mortgage Refinance Company Plc and UAC Property Development Company Plc.
According to available records, FMDQ and NSE listed Flour Mills’ N20.11 billion bonds, comprising N10.11 billion Series 1 and N10 billion Series 2 Senior Unsecured Fixed Rate Bonds under its N70 billion Bond Issuance Programme.
Union Bank listed N13.50 billion bonds, comprising N7.19 billion Series 1 and N6.31 billion Series 2 Senior Unsecured Fixed Rate Bonds under its N100 billion Debt Issuance Programme, while C & I Leasing listed N7 billion Series 1 Fixed Rate Bond, under its N20 billion Bond Issuance Programme, on both Exchanges.
The Nigeria Mortgage Refinance Company and UAC Property Development Company also listed N11 billion 13.80 percent Series 2 Bond under the N440.billion Medium Term Note Program and N4.355 billion, 16 percent series 1 senior guaranteed fixed rate bond on the NSE.
Bonds are fixed income instruments issued by entities to raise funds. The issuer of a bond presents the bond as a promise to make available regular, fixed, income payments to the investor or the buyer of the bond who is also the bondholder. These income payments are known as coupons and bonds which pay coupons twice a year are known as semi-annual coupon bonds. There are also bonds that make coupon payments annually, known as annual coupon bonds.
Nigeria has witnessed the resurgence of debt issuance in the last five years and the tempo is expected to increase, as corporates in the banking, real estate and FMCG sectors are increasingly accessing capital from a debt market that has seen its risk appetite grow in recent times.
However, Nigeria’s corporate bond market is still relatively small compared to the FGN Bond Market, according to experts and market operators.
According to the Managing Director/CEO of FMDQ, Mr. Bola Koko Onadele, “FMDQ has supported the enhancement of market credibility, which has, in turn, boosted investor confidence in the Nigerian Debt Capital Market (DCM), through the provision of unprecedented transparency, spearheading of initiatives to boost secondary market liquidity and facilitating effective price formation, among other activities via its platform.”
He reiterated that through consistent collaboration with its stakeholders, FMDQ shall continue to further deepen and effectively position the Nigerian DCM for growth, and invariably contribute to the growth of the economy at large.
Also speaking, Associate Executive Director, FMDQ, Ms. Tumi Sekoni, noted that the OTC Exchange remains unwavering in its commitment to innovate and provide efficient services to support issuers and investors, towards achieving an operationally excellent and globally competitive DCM in Nigeria.
At the listing of Four Mills’ bonds, the company’s Managing Director, Mr. Paul Gbededo said, “Flour Mills is delighted to return to the capital markets with such a successful outing, especially with the level of interest shown by investors. The response from the market vindicates the company’s decision to have taken this additional step in diversifying its financing options.”
He stated that the transaction will help the company achieve its strategic objective of sustaining its market leadership position with our foods and agro-allied businesses.
On his part, Mr. David Adnori, managing director of HighCap Securities Limited, said “the private sector did woefully last year for equities issue in the capital market, we were able to raise about N32 billion, which was lower than expected.”
He noted that the government has been weak in terms of creating the enabling environment for corporate enterprises to raise funds from the capital market, pointing out that the issuance for bonds during this period is low as companies are crowded out by the government.
According to Adonri, last year, the government raised funds through Sukuk bonds at 16 per cent interest rate and at that rate the corporate bond was less competitive. Private companies could not compete with the government in accessing funds through bonds.
Going into 2019, Adonri emphasized that if the public sector continues to approach the capital market at any costs; private enterprises will remain uncompetitive and will not be able to raise funds through debt instruments.
The MD/CEO, Enterprise Stockbrokers Plc, Mr. Rotimi Fakayejo, said companies partaking in corporate bond and commercial papers realized the attractiveness. “You can imagine, if an investor buys a right last year at N42.50 and the same company is doing right this year at N12.50, it would have been a loss for investors who took up the right last year. For corporate bonds, the income for investors is fixed rate, they have nothing to fear.”
He noted that borrowing corporate bond would add to companies’ burden. “When you look at these companies’ finance costs, it has increased significantly. If they had done rights issue, returns will depend on the profitability of the company. Whether they make profit or not, these companies have to pay coupon at the expiry date of the bond issuance,” he explained.
