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More firms tap cheaper debts as CP issuance up 158%

Commercial Paper

In a bid to meet their working capital requirements and fund future expansion plans, more firms in Nigeria turned to cheaper debts last year as the issuance of commercial papers (CPs) surged by 158 percent.

Data from FMDQ Group showed there were 126 commercial paper issuances valued at N650.17 billion as of December 2023, compared to 72 issuances with a total value of N251.46 trillion in the previous year.

Ambrose Omordion, chief operating officer of InvestData Consulting Limited, said the issuance of CPs has become the new trend in the Nigerian capital market.

“It is cheaper for companies to raise capital through the commercial paper markets than borrowing from commercial banks because bank lending comes with higher interest rates,” Omordion said.

“In addition, interest on the debt is normally tax-exempt and can be deducted from the company’s tax return, lowering the actual cost of the loan to the company. Thus, commercial papers impact the ability of companies to remain competitive and sustainable,” he added.

CPs 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.

Analysts said companies faced liquidity issues last year, so they went for short-term instruments like CPs for funds.

“Liquidity last year was a bit tight due to a lot of cost challenges that companies faced due to high inflation, and naira devaluation, so they had to source for liquidity,” a Lagos-based investment analyst said.

The top 10 CP issuers as of December 31, 2023 were MTN Nigeria Communications Plc, Flour Mills of Nigeria Plc, GZ Industries Limited, Dufil Prima Foods Plc, C&I Leasing Plc, Saroafrica Funding SPV Plc, Cardinalstone Partners Limited, Coleman Technical Industries Limited, FSDH Merchant Bank Limited and FBNQuest Merchant Bank.

MTN Nigeria, which carried out four transactions at an issue yield of 13.5 percent, 16 percent, 13 percent and 16.5 percent, recorded an outstanding value of N247 billion, leading the pack for Nigerian companies as of December 29, 2023.

Flour Mills of Nigeria carried out two transactions with an outstanding value of N86 billion, at 13.5 percent and 1.5 percent issue yield, while GZ Industries Limited recorded an outstanding value of N18.38 billion at 19 percent issue yield.

Dufil Prima Foods recorded an outstanding value of N17.19 billion at a 16.92 percent issue yield, while C&I Leasing Plc had an outstanding value of N10 billion at a 19.5 percent issue yield.

Saroafrica Funding SPV recorded an outstanding value of N9.81 billion at a 19.25 percent issue yield, while CardinalStone Partners Limited recorded an outstanding value of N9.65 billion at a 14.25 percent issue yield.

Coleman Technical Industries recorded an outstanding value of N9.09 billion at a 16.5 percent issue yield, while FSDH Merchant Bank had an outstanding value of N8.69 billion at a 13.75 percent issue yield.

FBNQuest Merchant Bank recorded an outstanding value of N7.96 billion at a 13 percent issue yield.