Commercial paper issuances in Nigeria have plunged in the second half of 2024, as rising interest rates drive borrowing costs to record highs.
This retreat from the capital markets highlights the challenges facing debt-reliant firms and the potential ripple effects on the broader economy.
Nigerian companies are avoiding the capital markets in the second half of 2024 as rising interest rates drive up borrowing costs.
Recent data shows that commercial paper issuances (CP) since July have dropped to ₦165.8 billion, an 83% fall from the ₦972 billion issued during the same period in 2023.
PwC reports that companies reduced CP issuances by 37% year-on-year in the first half of 2024, issuing ₦503 billion compared to ₦797 billion in H1 2023.
In H2 2024, businesses issued only 30 commercial papers, a sharp decline from the 127 deals recorded in H2 2023.
These high borrowing costs have forced many companies to halt expansion plans, raising concerns about slowing economic growth.
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Major players like Dangote Cement raised ₦54.1 billion through two issuances at rates exceeding 23%, far higher than the 9.52%-14.74% rates the company secured in H2 2023.
Similarly, TGI Foods and Dufil Prima Foods issued commercial papers worth ₦28.99 billion and ₦28.62 billion, respectively, at similarly steep rates.
Government securities, such as OMO and Treasury bills offering returns of up to 24.32%, have drawn investors away from corporate issuances.
To compete, companies have raised their yields, further increasing the financial burden.
The Central Bank of Nigeria’s five rate hikes in 2024 pushed the Monetary Policy Rate to 27.25%, inflating borrowing costs.
Inflation, which hit 33.88% in October, and bank lending rates as high as 48%, have discouraged companies from seeking loans.
Many businesses, particularly in debt-reliant sectors like manufacturing and real estate, have scaled back investments to navigate these challenges.
