Corporate Nigeria snubs bond market for lending market

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Corporations in Nigeria have failed to take advantage of lower yields accessible from corporate bond listing as compared to the prime lending rate of 18.23 percent last reported in the country. Just 20 companies currently have corporate bonds listed on FMDQ.

Corporate bonds are long-term debt securities issued by corporations in order to raise finance for a variety of reasons, from building facilities and purchasing equipment to expanding their businesses.

With an outstanding value of N389.92 billion at an average yield of 15.66 percent, the value of corporate debt on FMDQ is far below the N15.23 trillion overall worth of loans collected by customers of Deposit Money Banks. A large proportion of the loans to customers is to corporate individuals at a rate above the prime lending rate.

Obinna Uzoma, a Lagos based economist told Businessday that “there are vast ways to negotiate interest rates when corporates want to borrow from banks but the requirements for listing with FMDQ might push a number of companies away, thereby having to deal with

just DMBS.”

Corporate bonds are usually characterized by higher yields than government bonds because there is a higher risk of a company defaulting than a government. They, however, can also be the most rewarding fixedincome investments because of the risk the investors must take on. A corporation’s credit quality is very important as the higher the quality, the lower the interest rate the investors receive.

The companies who are taking advantage of cheaper rates are Flour Mills of Nigeria, Union Bank of Nigeria (UBN), C&I Leasing, Nigeria Mortgage Refinance Company (NMRC) and UAC Property Development Company.

In reviewing the amounts listed by the companies, FMDQ admitted the listing of the Flour Mills N20.11 billion bonds, comprising N10.11 billion Series 1 and N10 billion Series … Read More...