Dangote Cement Plc, Sub-Saharan Africa’s largest cement producer, has announced the successful registration of its N150billion Commercial Paper Programme (CP) on FMDQ, Africa’s first vertically integrated financial market infrastructure group.
Riding on the relatively low-interest environment, the cement maker in a statement on Monday said the issuance will allow it to broaden its funding sources.
Combined with its N300 billion multi-instrument issuance Bond programme, Dangote Cement said the commercial paper increases the company’s access to capital market funding.
“The Commercial Paper will be used for working capital and general corporate purposes,” Michel Puchercos, Chief Executive Officer of Dangote Cement Plc, said.
According to the CEO, the establishment of a new N150 billion Commercial Paper confirms Dangote Cement’s ambition to maintain its long and successful track record of accessing the Nigerian debt capital market.
Like many other large companies, Dangote Cement has issued an aggregate of N450billion in Commercial Papers since 2018.
“I want to thank our stakeholders and investors who contributed to the success of all the previous issuances of the commercial paper programme. We look forward to the same warm reception as we engage with fixed income investors under this new programme,” Puchercos said.
Since 2020 when the yields on the Federal Government less risky Treasury-Bills dropped to near zero percent, more than 10 companies have tapped the Nigerian debt capital market to raise cheap capital.
Commercial paper represents a short term debt instrument issued by corporates to meet their financial obligations as well as cover short term receivables within a short period, usually between 15-270 days. Generally, CP carries a lower interest repayment rate than bonds and loans due to the shorter maturities of CP.
Yields on the government Treasury Bills are usually the benchmark for determining what corporates pay investors for borrowing their money.
Read also: FMDQ Exchange admits Dangote Cement Plc Series 1 Bond on its platform
After hitting more than 17 months-high at 9.75 percent on May 14, yields on the Federal Government less risky T-Bills dropped to 7.35 percent on August 11. Analysts expect the rate to decline further on account of the expected increase in demand. Stop rates had plunged to a four-year low of near-zero percent in 2020.
“We’ll continue to see that going forward. Rates are expected to continue to drop till at least the end of the year,” Ayorinde Akinloye, investment research analyst at United Capital, said.
Analysis of the last T-Bills auction result by the Central bank of Nigeria showed that investors bid at a rate as high as 10 percent for the 91-day bill, 12 percent and 10 percent for the 182-day and 364-day bills, respectively, but the CBN settled at 2.5 percent, 3.5 percent and 8.67 percent, respectively.
Stop rates for the 91-day and 182-day bills have remained unchanged for most of this year, but the 364-day bill has been declining since the third week of May.
While the low-interest-rate environment is favourable for corporates to raise capital at a cheap rate, it put investors at a disadvantage as the high inflation rate in Nigeria brings the real return on investment to negative.
With Nigeria’s 17.38 percent inflation in July, which is still above the single-digit return on the federal government less risky short term debt instrument, real return for fixed income investors remains in the negative.
While inflation-adjusted returns on the shorter 91-day and 182-day bills were -9.77 percent and -8.48 percent, respectively in April 2020, the real return on the bills dropped further to -14.88 percent and -13.88 percent in July of 2021, thanks to Nigeria record-high 17.38 inflation rate.
The trend was the same for the longer 364-day bill. From a -6.96 percent real return on investment last year, the bill gave investors -8.71 percent.
