Bank of Industry and Emzor price naira bonds 140 basis points apart

A ₦274.19bn development bank issue at 17.60% and a ₦26.7bn drugmaker issue at 19% show domestic investors paying for scale and discriminating on credit.

Jurisdiction NigeriaPractice Capital MarketsSector Banking and Financial Services, Healthcare and Pharmaceuticals

Two naira bond issues closed within weeks of each other in August and September. Bank of Industry, the federal development finance institution, raised ₦274.19bn of five-year notes at a fixed 17.60%. Emzor Pharmaceutical Industries, a privately owned manufacturer, listed ₦26.70bn of five-year notes at 19% on FMDQ Exchange.

Bank of Industry

BOI’s Series 1 notes were issued through BOI Financing SPV Plc as the first tranche of a US$1bn multi-currency instrument programme. Nairametrics reports the issue was initially sized at ₦250bn and increased after demand from institutional investors. FCMB Capital Markets acted as joint issuing house and bookrunner. Olaniwun Ajayi LP acted as Solicitor to the Transaction on the programme and the Series 1 issue.

The programme structure allows BOI to issue in more than one currency. The first tranche is naira, fixed rate and five years, which gives the bank local-currency funding to match naira lending.

Emzor

Emzor set up a ₦40bn programme and issued its Series I notes through Emzor Pharma Funding SPV Plc. Udo Udoma & Belo-Osagie, which acted as Solicitor to the Trustee, says the ₦25bn issue was oversubscribed by about 106.8%. The company has said the proceeds will fund working capital, expanded manufacturing and completion of its active pharmaceutical ingredient plant in Sagamu.

Reading the spread

In Meridian’s reading, the 140 basis point difference between the two coupons reflects the premium investors usually require for private corporate credit: BOI is a large, state-owned issuer, while Emzor is a privately owned manufacturer. The more useful signal is that both issues attracted enough demand to be upsized or oversubscribed at fixed rates for five years.

For corporate counsel and trustees, both deals use the special purpose vehicle structure that has become standard for Nigerian corporate bonds. That places weight on the trust deed and on the security package, which is where trustee’s counsel does most of its work.

What comes next

BOI’s programme leaves room for further tranches, including in foreign currency. Emzor has about ₦13.3bn of headroom left under its programme. Whether other manufacturers follow will depend on where secondary market yields settle after the current round of issuance.