The issuance of short-term corporate debt has spiked as Nigerian firms took advantage of the low cost of finance and short maturity period to bolster working capital.
In the first half of 2022, the value of commercial papers issued was N249 billion, 7 percent higher than the N233 billion raised in the same period last year, according to data from FMDQ Group.
According to market analysts, Nigerian companies opt for commercial papers for working capital purposes, especially because it is cheaper and is used for quick investment needs.
“The issuance of commercial papers by firms is to meet working capital requirements. Also, it is cheaper to issue while equity is long-term and expensive compared to debt instruments generally,” Sesan Adeyeye, an analyst at CSL Stockbrokers Limited, said.
“We can’t say commercial paper is better than equity or vice versa. They both have advantages and disadvantages. The use of funds determines the purpose of funds and the funding source required,” he said.
Commercial papers are money-market securities issued by large corporations to obtain funds to meet short-term debt obligations like payroll and are backed only by an issuing bank or company’s promise to pay the face amount on the maturity date, which is usually in 270 days or less.
According to Adeyeye, equity is used to finance the growth of the business either internally through business expansion or inorganically through mergers and acquisitions.
Olaolu Boboye, an analyst at CardinalStone, said some companies would rather opt for commercial papers because they can be cleared from their balance sheets in a year while issuing stocks would require reducing the ownership proportion of the current shareholder(s).
Companies that issued commercial papers in the first half of the year include MTN Nigeria Communications Plc, Lekki Gardens Estates Limited and Lekki Gardens Estates Limited.
MTN Nigeria Communications led the pack with the issuance of N127 billion series 1 and 2 commercial paper under its registered N150 billion programme.
Read also: How FBNQuest supports growth of commercial paper issuances in Nigeria
The issuance consisted of two tenors – a 184-day series issuance priced at a 7.50 percent yield and a 254-day series 2 issuance priced at an 8.50 percent yield.
According to the telecommunication giant, the issuance was in line with its strategy to diversify financing options, with the proceeds being deployed towards working capital and general corporate purposes.
Lekki Gardens Estates Limited signed a N25 billion commercial paper approved for the company by the FMDQ Security Exchange Limited.
Richard Nyong, chief executive officer of Lekki Gardens Estates Limited, said it would help to deepen its market offering to customers and unlock value for all stakeholders.
NOVA Merchant Bank announced the issuance of N20 billion series 1 and 2 commercial paper under the Nova Merchant Bank Limited N50 billion programme.
The bank said the proceeds from the commercial paper would be used to fund short-term working capital requirements and for general corporate purposes.
FBNQuest Merchant Bank Limited, a subsidiary of FBN Holdings Plc, issued a commercial paper worth N15 billion to investors.
The bank said the debt would help it meet its short-term liquidity needs and grant it access to alternative and cheaper sources of funding.
The Rand Merchant Bank Nigeria Limited sold N15 billion worth of commercial paper to investors.
The paper is offered in two tenors of 182 days and 270 days, according to details of the exercise, which has FCMB Capital Markets Limited as the dealer.
According to the financial institution, the issuance was a result of the need to get funds for its short-term working capital requirements and for general corporate purposes.
Veritasi Homes and Properties signed its commercial paper programme worth N10.00 billion, which was approved through the Board Listings and Markets Committee of the FMDQ Securities Exchange.
The programme positions the company to raise finance for a tenor up to 270 days from the debt market at a time in the future it deems suitable.
The United Capital Plc issued N12.48 billion series 8 commercial paper under its N50.00 billion commercial paper issuance programme on its platform.
The company said the proceeds would be used to finance short-term working capital requirements.
Neveah Limited announced the quotation of its N5.7 billion series 3 and 4 commercial paper issuances on the FMDQ Exchange.
It said the issuance was in line with the company’s strategic objective to evolve as a leading dealer and exporter of world-class quality agro-commodities and minerals to its clients while ensuring a transparent business approach.
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