Investors Rush to Government Debt as Rising Rates Squeeze Corporates
- Posted on January 02, 2025
- Stock Market
- By Samiat
Investors Rush to Government Debt as Rising Rates Squeeze Corporates
Nigerian Companies Face Funding Challenges in 2024
Investors in Nigeria have increasingly turned to government debt instruments, lured by high yields, leaving private firms struggling to secure funds in 2024. Here’s a breakdown of the situation:
Key Highlights:
1. Decline in Corporate Issuances :
• The number of company-issued instruments dropped to 133 in 2024, down from 140 in 2023.
• The total value issued fell by 12%, from ₦900 billion in 2023 to ₦790.4 billion in 2024.
2. Rising Interest Rates :
• To combat inflation, the Central Bank of Nigeria (CBN) raised benchmark rates eight times, moving from 18.75% in January to 27.5% in November 2024.
• This hike made borrowing more expensive for corporates, favoring government debt instruments.
3. Government Debt Gains Popularity :
• Yields on one-year Treasury Bills (T-bills) peaked at 30.7% in November 2024.
• The December 5 T-bill auction attracted ₦2.53 trillion in bids, nearly five times the amount offered.
4. Corporates Struggle to Compete :
• To attract investors, companies had to offer higher yields.
• Average discount rates on commercial papers rose to 27% (up from 16.4% in 2023). Some rates soared to 35%, as seen with Hillcrest Agro-Allied Industries.
5. Sector-Wise Insights :
• Top Issuers by Quantity:
• Daraju Industries Limited: 12 issuances, ₦18.2 billion.
• Skymark Partners Limited: 9 issuances, ₦10.7 billion.
• Top Issuers by Value:
• Dangote Sugar Refinery Plc: ₦141.8 billion (largest issuer by amount).
• Dangote Cement Plc: ₦119.4 billion.
6. Commercial Borrowing Becomes Costlier :
• Banks like Zenith Bank raised lending rates to 30%, with others ranging up to 36%, adding to the financial strain on businesses.
What Experts Are Saying :
• Joshua Joseph, a fixed-income analyst, described the CBN’s hawkish policy as necessary to curb inflation but acknowledged its impact on borrowing costs.
• Companies with weaker credit ratings are particularly affected, needing to offer significantly higher rates to attract funds.
Economic Implications :
The high-yield environment has provided an avenue for risk-averse investors while stifling corporate growth. This shift underscores the urgent need for balanced policies to address inflation without crippling private-sector financing
Nigerian Companies Face Funding Challenges in 2024
Investors in Nigeria have increasingly turned to government debt instruments, lured by high yields, leaving private firms struggling to secure funds in 2024. Here’s a breakdown of the situation:
Key Highlights:
1. Decline in Corporate Issuances :
• The number of company-issued instruments dropped to 133 in 2024, down from 140 in 2023.
• The total value issued fell by 12%, from ₦900 billion in 2023 to ₦790.4 billion in 2024.
2. Rising Interest Rates :
• To combat inflation, the Central Bank of Nigeria (CBN) raised benchmark rates eight times, moving from 18.75% in January to 27.5% in November 2024.
• This hike made borrowing more expensive for corporates, favoring government debt instruments.
3. Government Debt Gains Popularity :
• Yields on one-year Treasury Bills (T-bills) peaked at 30.7% in November 2024.
• The December 5 T-bill auction attracted ₦2.53 trillion in bids, nearly five times the amount offered.
4. Corporates Struggle to Compete :
• To attract investors, companies had to offer higher yields.
• Average discount rates on commercial papers rose to 27% (up from 16.4% in 2023). Some rates soared to 35%, as seen with Hillcrest Agro-Allied Industries.
5. Sector-Wise Insights :
• Top Issuers by Quantity:
• Daraju Industries Limited: 12 issuances, ₦18.2 billion.
• Skymark Partners Limited: 9 issuances, ₦10.7 billion.
• Top Issuers by Value:
• Dangote Sugar Refinery Plc: ₦141.8 billion (largest issuer by amount).
• Dangote Cement Plc: ₦119.4 billion.
6. Commercial Borrowing Becomes Costlier :
• Banks like Zenith Bank raised lending rates to 30%, with others ranging up to 36%, adding to the financial strain on businesses.
What Experts Are Saying :
• Joshua Joseph, a fixed-income analyst, described the CBN’s hawkish policy as necessary to curb inflation but acknowledged its impact on borrowing costs.
• Companies with weaker credit ratings are particularly affected, needing to offer significantly higher rates to attract funds.
Economic Implications :
The high-yield environment has provided an avenue for risk-averse investors while stifling corporate growth. This shift underscores the urgent need for balanced policies to address inflation without crippling private-sector financing
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