Following the drive to expand their business networks and compete in key sectors, MTN Nigeria Communication Plc, Dagntoe Cemment Plc, Seplat Energy Plc and 12 other firms listed companies on the Nigerian Exchange Limited raised N3.08 trillion in total debts in first quarter of (Q1) 2023, an increase of 2.57 per cent from N3 trillion reported in full year ended December 31, 2022.
Other firms investigated by THISDAY who play in the Fast-moving Consumer Goods (FMCG), oil and gas firms, breweries agro-allied sectors tapped the debt markets to shore up working capital.
In the period under review, MTN Nigeria Communication followed by Dangote Cement and Seplat Energy have the highest debts amid growing total assets and profit.
Capital market analysts said the growing debts by these firms is contributing to cuts in profit and dividend to shareholders.
For instance, MTN Nigeria closed Q1 2023 with N779.9 billion total debts, an increase of 13.08 per cent from N689.67 billion in 2022 full financial year, while Dangote Cement reported N680.9 billion total debts in Q1 2023, a decline of 6.2 per cent from N725.88 billion reported in 2022FY.
Analysis of MTN’s unaudited result and accounts for March 31, 2023, showed that its long term-debt dropped to N424 billion from N439.46 billion in 2022, while short-term debts increased to N355.9billin as of March 31, 2023, a growth of 42.2 per cent from N250.21billion reported in 2022.
In Q1 2023, MTN Nigeria led other firms with the issuance of N125 billion Commercial Papers (CP) to boost its short-term working capital and funding requirements.
MTN Nigeria communications reported N58.05billion finance costs on its borrowing in Q1 2023 from N40.32 billion reported in Q1 2022.
MTN Nigeria during the first quarter of 2023 had a debt-to-equity ratio of 1.79x, a decline from 2.05x in 2022.
THISDAY had reported that firms operating in Nigeria raised a whopping sum of N766.64billion via CPs and Corporate Bonds in Q1 2023, an increase of 145 per cent from N313.2 billion raised in Q1 2022.
CPs are money-market securities issued by large corporations to obtain funds to meet short-term debt obligations like payroll and are backed only by an issuing bank or company’s promise to pay the face amount on the maturity date, which is usually in 270 days or less.
The CPs of MTN Nigeria included a 188-day CP at a yield of 11.00 per cent and 267-day CP at a yield of 12.50 per cent. The CP issuance was completed on 1 March 2023.
The exercise began on January 30 and was concluded on February 2, with the cement maker saying the funds raised were intended for financing the company’s working capital needs and for general corporate objectives.
For Dangote Cement, its long-term debts stood at N342.05billion as of Q1 2023, representing a growth of 2.56 per cent from N333.5 billion reported in 2022, while its short-term debts dropped to N338.83 billion as of Q1 2023 from N392.38 billion reported in 2022.
The Cement giants had raised N 126.7 billion under its N150 billion CP programme in Q1 2023. Other financial liabilities of Dangote Cement are: N263.26 billion Bond as of Q1 2023 from N263.17billion reported in 2022; N24.96 billion bulk commodities international loans as of Q1 2023 from N23.7 billion reported in 2022 and N97.07 billion bank loans as of Q1 2023 from N261.43 billion reported in 2022.
The firm explained that, “The loans from Bulk Commodities International, a related party, are denominated in USD with interest rate ranging from six per cent to 8.5 per cent per annum. The Company’s publicly issued bonds amount to N266 billion as at 31 March 2023 (December 2022: N266 billion) with coupon rate of 11.25per cent to 13.5 per cent. The tenure is between 2 to 9 years; CPs were issued under a programme with a face value of N138 billion. The tenure is between 176 days and 267 days with discount ranging from 10 per cent to 13 per cent and Bank loans include Letters of credit (LCs) obtained to finance inventories, property, plant and equipment, etc. The average interest rate is Libor plus 9.5 per cent”
On its part, Seplat Energy in the period reported total debts of N344.74billion, an increase of 0.1 per cent from N344.38billion reported in 2022.
Capital market stakeholders have expressed that listed companies are leveraging on the issuance of short-term corporate debt.
The Vice President, Highcap Securities, Mr. David Adnori attributed the surge to the low yield environment in the treasury bills(T-bills) market, which enabled listed firms to access the market to raise funds through CPs.
Adnori stated that with lending rates soaring at an unprecedented level, companies in the country have been exploring creative ways to mobilise funds at affordable rates.
He expressed further that , “Between 2019 and 2021, low interest rates spurred companies to take on money debt to finance their short-term working capital needs and reduce existing obligations as central banks slashed monetary policy rates to shield their economies from the coronavirus pestilence.
“However, starting from the second quarter of 2022, the Central Bank of Nigeria (CBN) has been hiking the benchmark interest rate as it seeks to tame rising inflation brought on by the Russia-Ukraine war that led to a sharp rise in commodities prices. Companies are exploring the debt market, including seeking CPs, which are short-term and may provide some sort of bridge finance pending when there is clarity in the rate environment.”
Speaking from shareholder perspective, National Coordinator, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie urged listed companies to maintain effective borrowing mechanism in order not deny investors of dividend payout.
According to him, “Borrowing to finance key projects are always backed by shareholders. It is very important listed companies borrow to remain in business to expand. However, the management must be prudent in borrowing and ensure dividend are paid to shareholders.”