Firms tap capital markets for N371 bn as sentiment turns positive
by BALA AUGIE
November 2, 2017 | 12:50 am| | | Start Conversation
Nigerian firms are raising funds from the equity and debt capital markets to help strengthen their balance sheet and refinance loans.
Several Nigerian companies have tapped the capital markets this year after a currency crisis in 2015 dragged the country’s economy into recession and stoked inflation, frustrating businesses and consumers.
“If you are paying so much to borrow money, it makes sense to raise capital than pay high interest rates to banks,” said Bismarck Rewane, Managing Director/ Chief Executive Officer of economic consulting firm Financial Derivatives Company Limited, by phone.
“Paying down debt will reduce debt burden and increase their margins,” said Rewane.
Flour Mills Nigeria Plc registered plans with regulators to raise up to N40 billion in equity over a three year period and obtained approval from shareholders last year to sell shares, but weak capital markets delayed its launch.
The Nigerian consumer good firm is now registering a N70 billion ($223 million) bond programme to refinance short-term loans.
It has a total debt of N147.23 billion in the balance sheet in the six months to September 2017 while finance costs spiked by 48.89 percent to N16.2 billion.
Lafarge Africa Plc, the country’s second largest cement producer, has submitted application to the Nigerian Stock Exchange (NSE) to raise N131.25 billion via rights, which is 73 percent of its shareholders fund.
The company said it needed the money to settle a debt of N139 billion owed to parent company, Holcim.
Total long term borrowings in the balance sheet of the cement maker were N252.15 billion as at the third quarter.
Next is consumer goods giant Unilever Nigeria Plc with a right issue of N63 billion.
The parent company of the Nigerian consumer goods firm plans to inject the cash in order to settle a shareholder/related debt of $59.70 million.
Guinness Nigeria is raising N40 billion from the capital market as it seeks to settle the huge debt in its balance sheet and bolster working capital position.
The Nigerian brewer got a $95 million lifeline from parent company Diageo to help cushion the effects of a dollar scarcity. The company has total debt or liabilities of N103.20 billon.
Union Bank of Nigeria Plc, a mid-Tier lender said it would launch a N50 billion rights issue as it seeks to accelerate growth in a competitive industry.
Analysts are betting that improved economic activities that triggered investor appetite for equity and debt securities will propel Nigerian firms to raising more funds next year.
“There is more appetite for equities as prices has moved up in the last six months since the introduction of the Investors’ and Exporters’ window by the central bank,” said Ayodeji Ebo, managing director and chief Executive (CEO) of Afrivest Securities Limited.
“It is better to take advantage of this and go to the market and raise funds. Firms can also engage strategic investors to take up the rights” said Ebo.
In the second quarter of 2017, Nigeria’s economy returned to positive growth as real gross domestic product (GDP) increased by 0.55 percent compared to the second quarter of 2016.
Similarly, investor appetite for the equities market has increased with the Nigerian Stock Exchange (NSE) All Share Index (ASI) rallying 37.26 percent between January and Nov 1, 2017, recovering from a 6.20 percent contraction between January and December 2016.
UAC Nigeria, one of the largest conglomerates in the country is planning on raising N15.40 billion from existing shareholders to finance the restructuring of subsidiaries operations.
Mutual Benefit Assurance has submitted an application to the Nigerian Stock Exchange (NSE) for the approval and listing of 4 billion rights at a price of N0.50.
Ayodele Akinwunmi, Head, Research at FSDH Merchant Bank Limited says companies will continue to raise capital as the economy improves.
“Improvement in the economy means firms will have more demand for their products. That will require additional capital requirement to enable them meet such copious demand,” said Akinwunmi.
Big Read |