High interest rates: Nigerian corporates are paying more to borrow less

Nigeria's largest listed company is facing a challenging paradox of paying significantly higher interest rates while reducing its debt. The Central Bank of Nigeria's aggressive tightening campaign has kept borrowing costs high, leading to a surge in aggregate interest expenses for ten large companies in various sectors.

Despite this trend, BUA Foods managed to slash finance costs by almost half, while Nestlé and Nigerian Breweries also saw declines in their interest expenses. The pressure of rising finance costs on profits is evident, with companies needing to maintain a strong interest coverage ratio.

However, some firms have shown improvement in operating cash generation and profitability, with Presco and Okomu Oil maintaining robust margins. The CBN's indication of no imminent rate cuts suggests that high finance costs will continue to be a challenge for Nigerian corporates in 2025, making debt efficiency and disciplined capital allocation crucial for defending margins in a competitive economic environment.