Some public liability companies in Nigeria reduced their borrowing in the first half of this year. NGOZI AMUCHE looks at the factors that led to the development
As the global community continues to grapple with the Coronavirus Disease, which negatively impacts industries, economies and markets, five companies quoted at the Nigerian Stock Exchange have reduced their borrowing by N189.58bn in the first half of 2020.
The firms, the figures
The companies are International Breweries, Lafarge Nigeria, Total Nigeria, Julius Berger and Unilever Nigeria, which jointly reported a total of 132.04 per cent reduction in their borrowings to N208.965bn in the first six months of 2020 against N398.545bn at the same time last year.
The financials released to the NSE showed International Breweries leading the pack with 59.19 per cent reduction in its borrowing to N107.585bn in H1 2020 from N263.635bn recorded at the review period of 2019.
Lafarge followed with N54.952bn from N64.185bn (14.39 per cent). Total reported 22.14 per cent reduction in its borrowings to N31.047bn from N39.877bn. Julius Berger recorded 50.62 per cent reduction to N14.885bn from N30.142bn while Unilever recorded 29.98 per cent to N494.13m against N705.72m.
What experts say
Market pundits attributed the development to the tension from expectations of half-year results alongside portfolio re-alignment, which took the better part of the performance in June.
However, market watchers observed that investors were expecting the half-year earnings, which were already trickling in to reveal the extent of damage the pandemic had done to the operations of most listed companies.
This is anchored on the fact that the total and partial lockdown enforcement was felt more in the second quarter between April and June.
The Director-General, Lagos Chamber of Commerce and Industry, Dr. Muda Yusuf, blamed some of the problems the nation is going through on the current administration’s slow start in building the economy.
According to the LCCI boss, absence of an economic blueprint was one of the concerns of the private sector in the early days of the administration.
Yusuf said the manufacturing sector experienced challenges during the past three years of the current administration. “The factors were both external and domestic. The main external factor was the collapse of the oil price, which affected foreign exchange availability and triggered sharp exchange rate depreciation.”
He noted that the policy component of the problem resulted largely from lack of support and forex policy choices that aggravated the problem of forex liquidity.
“The restriction of 41 items from access to interbank forex market added to the plight of manufacturing firms. The high interest rate and unfair competition from imported products were also factors that constrained the growth of the industrial sector. High energy cost continued to impede the competitiveness of the sector,” he argued.
Analysts at InvestData Consulting Limited said that earnings generally were wild and volatile to ride every quarter or yearly, but the Q2 earnings season should even be more volatile than past quarters due to the major hit to earnings that most major companies will experience.
“But it is this volatility that offers the potential for big moves and big profits,” he added.
The analysts warned that while most traders just roll the dice and guess, trading earnings season should not be a gamble. They added that investors lacked control over the earnings of companies.
“What you have control over is your preparation through trainings on how to use the earnings season to your advantage,” they noted.
