Corporate Bond Issuance Declines as FG Dominates Market

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Goddy Egene

The continued dominance of the bond market by the federal government is crowding out corporates as only N31.47 billion was raised by companies in 2018, compared with N1.16 trillion by the government.

Since the 2008 and 2009 market crash that impacted negatively on domestic investors, the primary equities market has remained dormant. Most companies have been raising fresh capital through bond issuance, with few of them opting for rights issues.

However, the bonds raised by corporate have reduced following FG’s funds raising activities.
The Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema on Monday disclosed that in fixed income market in 2018, the Federal Government of Nigeria (FGN) dominated by raising N1.16 trillion in a bid to finance fiscal and infrastructure deficits.

“State governments raised N125.59 billion in new debt capital, while corporates raised a total of N31.47 billion,” he said.
Market operators and analysts had in the past complained that the federal government was crowding out corporates by accessing the market for funds offering relatively higher coupon.

But the Debt Management Office(DMO) had defended government’s borrowing activities, saying rather than crowding out corporates, government was creating a market that will become accessible to corporates for capital raising.

But some market operators said the dominance of bonds market by the federal government may have led to increased in issuance of commercial papers (CPs) by corporates.
Dangote Cement Plc joined the companies that accessed the CPs market last year raising N100 billion under its N150 billion CP programme.

Speaking on the CP programme, the Managing Director of DCP, Mr. Joseph Makoju said the CP issued under the programme was deployed towards capital expenditure, working capital and general corporate purpose.

The corporates’ preference for CPs is partly due to the dominance of the bond market by the government that raised funds at higher interest rate. Investors consider FGN bonds first before looking at those issued by companies. Hence, many of the companies resorted to CPs issuance, which is relatively cheaper to raise,” an operator said.

Also, the unprecedented transparency, governance and integrity brought by FMDA OTC Securities Exchange to the CP market have encouraged corporates to patronise the market.

The Managing Director/Chief Executive Officer of FMDQ OTC Securities Exchange, Mr. Bola Onadele.Koko had said the benefits of transparency and governance offered by FMDQ around its CP quotation process and post issuance of the CPs cannot be over-emphasised as they directly impact, not just the issuers, but investors and the market regulators,” he said.

Some of the firms that have patronised the CPs market are: Stanbic IBTC Bank Plc, Wema Bank Plc, Nigerian Breweries Plc, Guinness Nigeria Plc, Access Bank Plc, FSDH Merchant Bank Limited, Ecobank Nigeria Limited, UACN Property Development Company Plc, Dangote Cement Plc.