A N30bn fund raise

Julius Berger recently completed its first-ever commercial paper (CP) issuance. It announced the completion of its series 1 and 2 issuances valued at N30 billion. The Series 1 issuance was priced at a 14.00% yield on a 182 days tenor and Series 2 at a 15% yield on a 267 days tenor. The yield on CPs reflect the Monetary policy rate (MPR).

The company stated that the money raised would be used to fund working capital, maintain its construction business and give flexibility to its diversification drive (the company recently commissioned its cashew processing plan marking the beginning of its diversification into agriculture).

So what?

Julius Berger has been a key part of Nigeria’s infrastructure story since its founding in 1970. The fact that this is its first CP issuance speaks to the state of the Nigerian capital market.

Looking at the company’s most recent financial statements, financing costs were about N4.4 billion (1% of total revenue and 20% of operating profit). We had slim profit margins (cost of sales was 84% of sales). Also, a good percentage of the company’s operating income goes to foreign exchange acquisitions. With all this in mind, additional liquidity is an important need the commercial paper issuance satisfies.

Going forward, the diversification to cashew for exports will be an interesting one. It gives the company an additional source of revenue but more importantly, it gives access to foreign exchange. If the cashew business scales, it can help reduce the foreign exchange acquisitions which is currently 19 % of operating profit or 52% of total profit.