An assessment of selected Nigerian companies’ new net borrowings in 2024 indicates a decline in reliance on bank loans for working capital. This is as rising interest rates scare off borrowers.
In 2024, twenty-one companies listed on the NGX had a negative net new borrowing of N488 billion. They made repayments of N1.12 trillion while taking new borrowings of N653.6 billion. However, in 2023, there was a positive new net borrowing of N486.8 billion, as these same companies made new borrowings of N1.4 trillion while repaying N955 billion.
New net borrowing refers to the total amount a company borrows within a period, minus any repayments made on the principal of existing debt. Ideally, positive new net borrowing suggests companies are trying to fund expansion, invest in new projects, or support working capital. However, negative new net borrowings suggest that companies are prioritizing debt repayment over borrowings, a sign of financial caution.
According to the CBN, credit to the private sector declined by N519.4 billion between January and November 2024. However, in 2023, credit to the private sector appreciated by N21 trillion between January and December.
With benchmark interest rates at 27.5 percent and commercial bank lending rates averaging between 32 and 36 percent, borrowing has become increasingly costly for businesses, particularly manufacturers. Under typical conditions, companies turn to bank loans to finance working capital, especially when internal cash flow falls short.
However, 2024 data indicate a declining dependence on these readily available bank loans, signalling a shift in how manufacturers are managing their short-term financing needs.
According to the managing director of one of the top manufacturers in Lagos, this is not unexpected, as inflation and interest rates are currently combative to manufacturing.
Read also: Heirs Holdings executive defends critical role of marketing in enhancing business
He noted, “Manufacturers are responding to MPR and high commercial loan interest rates which can go as high as 36 percent in some cases.”
“If you are fighting inflation and trying to create jobs, and you have to borrow at 32 percent, you need to choose your battles and intelligently create alternative sources of funding.”
Data from Selected Companies
Some of the selected companies in this review include BUA Foods which repaid N360.7 billion of its bank loans in 2024, without making a new borrowing. In 2023, BUA Foods made new bank borrowings of N577.3 billion, while making repayments of N219.9 billion. Nigerian Breweries was also captured, as it made repayments of N381.9 billion while taking an additional loan of N331.4 billion. This resulted in a negative net new borrowing of N50.5 billion.
Eterna Plc made principal repayments of N207.9 billion while taking new loans of N191.2 billion in 2024. However, in 2023, the downstream oil company took new loans of N123.6 billion while making principal repayments of N122.2 billion.
Presco Plc and Conoil had negative net borrowings of N3.6 billion and N6.3 billion respectively in 2024. However, in 2023, Presco made a net additional borrowing of N4.6 billion, while Conoil had a negative net new borrowing of N3.7 billion.
Read also: Nigerian-American Chamber of Commerce president prioritises access to market, growth for SMEs
Fidson Healthcare had a negative net new borrowing of N1.2 billion, as the company made additional borrowing of N9.3 billion while repaying N10.5 billion. In 2023, the company took new loans of N11.1 billion, while repaying N3.6 billion.
However, one major exception was the UAC of Nigeria, which took N68.7 billion in new loans while repaying N54.9 billion in 2024. In 2023, UACN took N36.8 billion in new loans, while repaying N29.7 billion. Essentially, UACN’s exception is linked to the rising profitability profile of the company, as its operating units have increasingly become more profitable since 2020.
Other companies covered in this analysis include Beta Glass which moved from a new net borrowing of N5.75 billion in 2023 to negative N22.9 billion in 2024.
Apart from shifting financing dynamics, the high-interest rate environment has forced corporates to shift focus to alternative financing measures. Over the past two years, Nigerian corporates have raised about N2.68 trillion from debt securities.
Despite the high-interest environment, about N1.05 trillion was raised from corporate bonds and commercial papers in 2024. The median yield rate on these instruments was way below commercial bank lending rates.
For manufacturers, the high cost of debt is tantamount to an inability to expand or finance certain operations. Essentially, they may have to limit the scope of their operations. However, within the broader macroeconomic scope, with inflation hovering in the 30 percent region, the hiked interest rates were a necessity.
The CEO earlier referenced noted, “MPR is high and for a very good reason. We need to tame inflation.” He then advised fellow manufacturers to get innovative with cash flow management.
“MAN should encourage member companies to get innovative with cash flow management and think of creating working capital financing from other sources.”
English (US) ·