Africa’s largest bank by customer base, Access Bank Plc and Union Bank Plc have each completed issuance of N30 billion bond to position themselves to exploit the current decline in debt market yields.
Terms of the bond issuance: Access Bank disclosed on Friday that its Tier 2 bond had been offered at 15.5% with 2026 fixed as its maturity date. The Union Bank bond, a tranche of its N100 billion debt issuance programme, was issued at 16.2% with a ten-year tenor.
Interestingly, no mention was made by both lenders regarding the purpose of the capital-raising exercise.
The back story: Nigeria’s apex bank, Central Bank of Nigeria (CBN), had in 2017 launched a series of interventionist policies aimed at frustrating treasury bills sales in the open market as a measure aimed at the twin benefits of reducing inflation and shoring up the Naira.
The idea was to keep yields on debt market instruments at a low ebb while prodding banks to grant credit to businesses and individual borrowers as a way of lifting the economy out recession. That year, the Federal Government adopted the aggressive strategy of redeeming part of its treasury bills to slash borrowing cost drastically.
Taking the move further, the CBN sustained a firm grip on money market activities by constraining liquidity in order to keep the inflation rate low. The step has paid off significantly as it has succeeded in achieving foreign participation in the bonds market so as to strengthen the Naira.
Why this matters: Access Bank and Union Bank, like other commercial banks, may look the way of bonds as a means of meeting their pressing financial obligations.
This is particularly favourable at this time given the low yield rates on bonds, which enables them to borrow cheaply.
Interestingly, the maturity dates of the bonds are reasonably long, meaning such banks have enough time to pay off the debt in the future.
Bond yields have plummeted from 18% since the CBN intervened in 2017. Yields on treasury bills with a one-year tenor were last auctioned for as low as 11%.