Nigerian companies are delaying issuing new debt as they await a more favorable borrowing environment from September, leaving the corporate bond market in a lull.
With interest rates at their highest levels in decades now, the cost of servicing new debt has become expensive for many firms.
Consequently, corporate organisations are betting on rate cuts from the Central Bank of Nigeria (CBN)’s September Monetary Policy Committee (MPC) meeting to lower borrowing cost and make debt more appealing.
Data from FMDQ show that there was no new commercial papers (CPs) in July unlike the second quarter (Q2) of the year, especially in June, when there was a surge in issuance.
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Olaolu Boboye, head of research at CardinalStone, said that a lot of companies are awaiting the MPC to cut rates so they can raise funds at cheaper rates.
“Firms have re-accessed markets, and the approach for rate is still biased towards the downside. As a result, companies might be looking to wait it out because they won’t issue at a premium of 20 percent-23 percent when they can issue later in the year at 15 percent -16 percent,” he said.
Ike Ibeabuchi, an emerging markets analyst, said with inflation dropping to 22.22 percent in June 2025 from 34.19 percent year-on-year, the CBN will likely decide to lower rates from September.
“Companies know that rate cuts will likely happen this year. So, there’s no need rushing to raise funds at much higher costs now when you can raise them at much lower rates in no time.”
A chief finance officer of a pharmaceutical firm said, “It no longer makes sense to issue at current rates when there’s likely to be a rate cut later in the year. Right now, one will have to issue at a premium to a government instrument to attract investors.”
Declining yields on short-term debt
Yields on government short-term debt have been on the decline. At the Nigerian Treasury Bill (NTB) auction last week, investors saw the yield decline to 19 percent from 29 percent at the beginning of the year. Similarly, the FGN Savings Bonds are currently issued at 15 percent for the two-year bond and 16 percent for the three-year bond, respectively. The recent FGN bonds were also in the 16 percent range.
Amid Nigeria’s high-interest monetary environment since 2023, corporate issuers have increasingly turned to shorter-tenured commercial papers.
BusinessDay has it on good authority that Presco PLC has called back its N150 billion bond programme issued last year.
When a company issues a callable bond, it has the right to pay off the bond and its accrued interest before its maturity date. This is a crucial feature for a company if there is an anticipation that market interest rates will drop after the bond has been issued.
The company pays back the principal to the bondholders, often with a small premium as compensation. This process allows the company to reduce its interest expenses, leading to significant cost savings over the life of the new bonds. The money saved can then be used for other purposes, such as funding expansion or increasing profits.
However, BusinessDay understands that Presco took this step because it plans to explore the much cheaper equity option to raise N250 billion through the rights issue.
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Commercial papers
Between April and June, BusinessDay saw a rush in CPs. The amount being offered varied widely, from as little as N1.4 billion to as much as N193 billion.
Access Bank raised N193.25 billion in two tranches, with returns between 21.5 percent and 24.75 percent.
Coleman Industries raised N50 billion under its N100 billion programme at 23 percent -24.75 percent interest. Mecure, a pharmaceutical firm, also raised N10 billion worth of CPs at 26 percent, while SKLD had one of the lowest issues of N1.4 billion at 24.75 percent -27 percent return.
FCMB also made a strong entry with a N70 billion dual-series offer.
Why surge in CPs?
Gbolahan Ologunro, portfolio manager at FBNQuest, explained that the surge in CPs in Q2 was a result of discussions that were going on at investment banks on the corporate debt market regarding when to likely access the market at lower yields.
Also, Ayodeji Ebo, managing director of Optimus by Afrinvest, noted that a rush to issue CPs in the first half (H1) of 2025 might have been accelerated by a new policy requiring companies to seek the Securities and Exchange Commission (SEC) review and approval before issuing such instruments.
He said firms might have fast-tracked their plans ahead of the July enforcement of the policy, as the new process could be more rigorous and time-consuming.
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SEC’s new rules
Some of the new rules by the SEC for the issuance of CPs to raise short-term funds are: Companies must have at least N500 million in shareholders’ funds, a level they must maintain for the duration of the CP. They also need an investment-grade credit rating from a recognised agency and could not have defaulted on previous debts. If a guarantor is involved, a formal agreement must be in place.
