Nigerian firms’ borrowing cost up 45% as rate hike bites
Nigeria’s biggest firms are feeling the heat of the central bank’s decision to raise interest rates as new data show a surge in the cost of servicing bank loans.
Their borrowing costs, which are interest and other expenses, increased by 44.92 percent to N128.36 billion as of September 2022 from N88.57 billion in the same period last year, BusinessDay’s calculation showed.
The firms include Fidson Healthcare, May & Baker Nigeria, Okomu Oil, Presco, Transcorp, UAC of Nigeria, BUA Foods, Nestle Nigeria, Dangote Sugar Refinery, Nascon Allied Industries, Cadbury Nigeria, Nigerian Breweries, International Breweries, Guinness Nigeria, Dangote Cement, BUA Cement, and Lafarge Africa.
Further findings showed the total borrowings (short-term and long-term borrowings) of the firms grew by 35.96 percent in Q3 2022 to N1.65 trillion from N1.21 trillion in the corresponding period of 2021.
In Africa’s biggest economy, higher prices of raw materials and energy costs are causing companies to lean on credit just when interest rates are rising at the fastest pace in decades.
The Central Bank of Nigeria has increased its monetary policy rate, the benchmark interest rate, by 400 basis points this year to 15.5 percent in September from 11.6 percent in May.
For firms that have loans at a variable rate or need to refinance, the recent rising interest rates will have a marked effect on costs and profits.
Palm oil makers
Okomu Oil Palm and Presco Plc reported a 964 percent and 993 percent spike respectively in interest on long-term loans as of September 2022.
Okomu’s interest on long-term loans surged to N479.7 million in the nine-month period that ended September 2022 (9M 2022) from N45.08 million in the same period last year, while Presco Plc saw its finance costs surge to N5.97 billion in September 2022 from N546 million in September 2021.
“Particularly for Presco Plc, the main driver was increased borrowings and the rate hike. Over the last four quarters, the company’s debt-to-equity ratio increased from 59.4 percent to 152.5 percent as total debt went from N25 billion to N65.9 billion,” Kayode Eseyin, a research analyst with CardinalStone Partners, said.
“The impact was felt in the first half of 2022 financials which revealed an 8x jump in the net finance costs and the same trend was witnessed in 9M 2022.”
Eseyin doesn’t expect the borrowing spree to continue as the debt on their balance sheet is likely to lead to persistent finance cost pressures.
However, he noted that the increased borrowings could lead to lower profit as they would have to pay interest expenses on these debts.
Cement makers
Nigerian largest cement manufacturers, Dangote Cement (DangCem), BUA Cement, and Lafarge Africa, collectively reported a 36.81 percent surge in interest expenses.
DangCem’s interest expense grew by 35.23 percent to N53.39 billion in 9M 2022 from N39.48 billion in the same period last year. Its total borrowings also surged by 28.66 percent to N686.64 billion from N531.35 billion, of which bank loans accounted for 72 percent of the total loans reported during the period.
Bank loans reported by DangCem amounted to N398.5 billion as of September 2022. The company noted that bank loans include letters of credit obtained to finance inventories, property, plants and equipment.
BUA Cement reported a 418.49 percent jump in its interest expense, saying the “discontinuance of capitalisation of bond and loan interest on Sokoto line 4 accounted for interest expenses increase.”
Its interest expense increased to N6.17 billion in 9M 2022 from N1.19 a year earlier. Its total bank loans for the period amounted to N97.46 billion, a 10.42 percent increase from N88.26 billion in the same period last year.
Lafarge Africa’s interest on borrowings, however, declined by 74.90 percent to N881 million in 9M 2022 from N3.5 billion a year earlier.
Its total borrowings grew by 44.81 percent to N32.51 billion, with bank loans contributing N28.9 billion.
FMCG firms
BUA Foods’ finance charges stood at N6.39 billion in 9M 2022, a 1.84 percent decline from N6.51 billion a year earlier. The company said this was due to an efficient funding mix along with business transactions.
Nestle Nigeria reported interest expenses on financial liabilities amounting to N7.38 billion in 9M 2022, 42.75 percent higher than N5.17 billion a year earlier. Included in the amount is the interest expense on intercompany loans amounting to about N6.7 million, up from N3.8 million last year.
Dangote Sugar Refinery’s interest on bank loans declined by 9.52 percent to N95 million in 9M 2022 from N105 million a year earlier. The firm reported a 37 percent increase in finance costs incurred on letters of credit amounting to N4.47 billion, up from N3.25 billion in the same period last year.
Nascon Allied Industries reported a 76.67 percent increase in interest on bank loans and overdrafts in 9M 2022 to N106 million from N60.39 million a year earlier.
Interest on borrowings reported by Cadbury Nigeria grew by 129.53 percent in 9M 2022 to N342.5 million from N149 million a year earlier.
Beer makers
Nigerian Breweries grew its interest expense by 61.85 percent to N27.19 billion in 9M 2022 from N16.8 billion a year earlier.
International Breweries reported a 269.9 percent increase in interest expenses to N4.92 billion from N1.33 billion.
Guinness Nigeria, in its first quarter (Q1) 2023 ended September 2022, reported a 485.8 percent spike in interest expense on loans and borrowings to N703 million from N120 million in the corresponding period of 2021.
Conglomerates
Transnational Corporation’s interest expense on loans was down by 8.10 percent to N9.6 billion in 9M 2022 from N11.4 billion a year earlier.
UAC of Nigeria reported a 123.6 percent rise in interest on bank loans to N2.26 billion from N999 million.
Healthcare
Fidson Healthcare grew its interest on bank loans by 42.86 percent to N1.3 billion in 9M 2022 from N896 million a year earlier.
May & Baker Nigeria reported a 21.07 percent growth in interest on bank loans and overdrafts to N361.7 billion from N299 million.