Nigerian Breweries ₦20bn CP Raise to Increase Debt Finance to 48%
Nigerian Breweries Plc N20 billion commercial paper (CP) raise has been estimated to increase debt portion of its capital structure to 48%.
In 2020, the leading brewer has been the most active in debt capital market, says analysts at Chapel Hill Denham.
This week, in a drive to supporting working capital needs, the brewer opened a fresh commercial paper subscription under its ₦100 billion CP programme on Monday.
The fresh debt capital raise has been projected by analysts at Chapel Hill Denham to be successful due to strong liquidity in the fixed income market as NB Plc takes advantage of low interest rates.
Chapel Hill Denham in a note said this is the company’s third CP issuance in 2020, after raising ₦53.83 billion in February 2020 against target raise of ₦45 billion.
The sum was raised via a 181-day series 5 issue worth ₦1.07 billion and 268-day tenor Series 6 issue amounted to ₦52.76 billion.
These were priced at a yield of 4.999% (discount rate – 4.878%) and 7.4969% (discount rate – 7.1068%, and 181-day tenor) respectively.
The company also raised a cumulative ₦37.36 billion in April 2020, split across 182-day tenor Series 7 worth ₦13.03 billion and 268-day series 8 amounted to ₦24.33 billion.
Analysts said the 182-day tenor was priced at a yield of 6.0% (discount rate – 5.8262%), while the 268-day tenor was priced at a yield of 7.0% (discount rate – 6.6587%).
“We believe this new offer will be channeled toward supporting working capital”, says Chapel Hill Denham.
However, analysts do not rule out the possibility of management channeling the proceeds toward partly refinancing a maturing series-6 CP worth ₦52.76 billion, anticipated to mature on 6 November 2020.
NB Plc new offer is split across three tenors: 120-day (discount rate: 2.7745%, yield: 2.80%), 183-day (discount rate: 2.9556%, yield: 3.00%), and 240-day (discount rate: 3.1341%, yield: 3.20%).
“We note that the implied yields on the offerings are 231 basis points (bps), 242bps and 254bps above the estimated yields on NTBs with similar tenors”, analysts stated.
The offer closes on Friday, 30 October 2020 with settlement on Monday, 2 November 2020.
In terms of credit quality, Nigerian Breweries is rated “Aa-” by Agusto and “A1” by GCR.
Analysts highlighted that the company’s series-5 issue amount of ₦1.07 billion and series-7 commercial paper issue amount of ₦13.03 billion matured on 11 August 2020 and 14 October 2020 respectively.
After this issuance, Chapel Hill Denham analysts stated that NB would have raised a total CP issuance of ₦112.12 billion in 2020.
According to analysts, this is the company’s largest cumulative CP issuance in a calendar year over the past five years.
Chapel Hill Denham said, ‘Given the robust liquidity backdrop, the debt market in Nigeria is currently sellers’ market, so we anticipate a successful issuance’.
It is also worthy to note that NB will be issuing this new debt at substantially lower yields, which should generate some savings on interest expense, with knock-on effect on its profitability in the coming quarters.
As at first half of 2020, NB had a total debt of ₦139.35 billion with CPs comprising 66.10% at ₦92.12 billion.
After the current offer, Chapel Hill Denham project NB’s debt-to-equity ratio at 47.5% in 2020 from 33.2% in 2019.
Meanwhile its net debt-to-earnings before interest tax depreciation and amortisation (EBITDA) is expected higher at 1.30x in 2020 from 0.73x in 2019.
“We note that NB, amongst its brewer peers, has been the most active in the debt capital market in 2020.
“Guinness Nigeria Plc has raised only ₦5 billion via a CP issuance in June 2020 while International Breweries Plc is yet to announce any plan on debt issuance.
“As at June 2020, NB was the most geared, with debt/equity ratio of 86.6% against 18.7% and 70.9% for Guinness and International Breweries respectively”, Chapel Hill Denham explained.
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Nigerian Breweries ₦20bn CP Raise to Increase Debt Finance to 48%
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