Decline in Commercial Paper and Corporate Bond Issuances Amid Rising Borrowing Costs
In the first half of 2024, the Nigerian capital market saw a significant drop in commercial paper and corporate bond issuances, with rising interest rates and macroeconomic instability contributing to the downturn. The commercial paper market experienced a 37% decrease in value, totaling N503 billion across 76 deals, compared to N797 billion from 104 issuances in 2023. The issuances were attributed to higher borrowing costs from the Central Bank of Nigeria’s monetary tightening to curb inflation.
The corporate bond market was even more severely impacted, with an 83% decline in H1 2024. Only one corporate bond was issued, marking the lowest number in the past five years. The only issuer during this period was Eat & Go Finance SPV PLC. This decline is largely linked to the increasing cost of borrowing, corporate bonds less attractive as investors demand higher yields in response to higher interest rates.
While the Federal Government of Nigeria continued its bond issuances, raising N6.25 trillion between July 2023 and June 2024, it also experienced a 59% decline compared to the previous year. Analysts suggest that companies are becoming more cautious with their financing strategies due to the uncertain economic environment, with the outlook for the debt issuance market remaining bleak in the short term.
