Dangote Sugar shifts to debt securities for financing

Dangote Sugar Refinery is planning a N200 billion multi-instrument issuance, signifying a shift in the company’s financing model towards the debt securities market.

According to a corporate notice issued on the NGX website, the company announced plans to register a N200 billion “multi-instrument issuance programme” with the Securities and Exchange Commission.

It was contained in the notice that the company’s management will decide when to issue securities under the Multi-Instrument Issuance Programme, based on market conditions and necessary regulatory approvals.

The company is currently executing a N150 billion commercial paper issuance program, under which it has issued N141.8 billion across five series.

A multi-instrument issuance refers to a corporate debt program where a company issues various types of financial instruments, such as bonds, notes, commercial papers, or other securities, as part of a single program.

This approach allows the company to diversify its funding sources and tailor the instruments to different investor preferences and market conditions.

Each type of instrument may have different terms, maturities, and interest rates, providing flexibility in meeting the company’s financing needs.

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In 2021, Dangote Cement registered its N300 billion multi-instrument issuance programme with the SEC and FMDQ. Dangote Cement issued N50 billion in Series 1 fixed-rate bonds across three tranches in the inaugural issuance under the program.

Series 2 of the fixed-rate bonds under the programme saw the issuance of N116 billion, across three tranches. Dangote Cement has raised approximately N166 billion so far through its multi-instrument issuance program, with maturity periods spanning 3, 5, 7, and 10 years for the instruments.

The move towards debt instruments has been spurred by increasing interest rates in the country, following a significant rise in the CBN’s benchmark rate by 750 basis points to 26.25%.

Despite issuing commercial papers at discount rates ranging from 17.08% to 25%, Dangote Sugar has achieved relatively lower yield rates compared to bank loans.

The shift towards debt instruments as a financing source is evidenced by a breakdown of the company’s finance costs for Q1 2024.

During the quarter, the company incurred N21.48 million in interest expenses on bank loans, reflecting a 30.6% year-on-year decrease from the N30.98 million incurred in Q1 2023.

Flour Mills of Nigeria Plc, another consumer goods company, has also experienced a notable shift, incurring an interest expense of N21.3 billion on bonds and commercial papers during the fiscal year ending March 31, 2024.

This represents a 300% increase from the N5.3 billion incurred in the previous fiscal year.

The group’s interest expense on bank loans and overdrafts saw a slight decrease, dropping from N48.6 billion in the previous fiscal year to N47.3 billion for the fiscal year ending March 31, 2024.