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Nigerian firms raise N807bn as commercial paper up 200%

Bigoz Logistics redeems N4.3bn commercial paper

In a bid to meet their working capital requirements and fund future expansion plans, many more firms have tapped the debt market as the issuance of commercial papers in Nigeria surged by 200 percent as of November 17, 2023.

Data from FMDQ Group showed there were 124 commercial paper issuances 124 valued at N807 billion, compared to 73 issuances with a total value of N251 billion in the full year 2022.

“The short-dated nature of CPs provided comfort for issuers to refinance and raise new capital while navigating uncertainty in the period,” said analysts at Afrinvest Securities Limited.

Commercial papers (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.

Read also: Successful completion of commercial paper issuance

Analysts say some companies would rather opt for CPs because they can be cleared from their balance sheets in a year whereas issuing stocks would require reducing the ownership proportion of the current shareholders.

“The commercial paper market experienced a surge in activities as companies sought to address their working capital and financing needs,” analysts at Meristem said.

Ambrose Omordion, chief operating officer of InvestData Consulting Limited, said the issuance of CPs has become the new trend in the Nigerian capital market used by companies to finance their operations.

“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.

Read also: Zedcrest Capital quotes maiden Commercial Paper on FMDQ Exchange

According to Wole Adeyeye, a financial analyst, most companies see CPs as one of the cheapest ways to increase their capital since yields on short-term instruments are relatively low compared to other instruments.

“Commercial papers typically do not create a lien on the company’s assets, and this creates room for enhanced operational flexibility,” Adeyeye said.

The top 10 CP issuers in the first nine months of this year were MTN Nigeria Communications Plc, Flour Mills of Nigeria Plc, Dangote Cement, Sterling Bank Plc, Stanbic IBTC Bank, Dufil Prima Foods Plc, Nigerian Breweries Plc, Rand Merchant Bank of Nigeria, CardinalStone Partners and Coleman Technical Industries Limited.

MTN Nigeria, which carried out three transactions at an issue yield of 13 percent, recorded an outstanding value of N197 billion, leading the pack for Nigerian companies as of November 17, 2023.

Flour Mills of Nigeria successfully completed two deals at different issue yields of 14 percent and 11.2 percent, recording a total outstanding value of N106 billion, while Dangote Cement rounded out the top three firms recording an outstanding value of N40.3 billion at an issue yield of 12.5 percent.

Sterling Bank recorded an outstanding value of N33.82 billion at an issue yield of 13.5 percent as at March 2023; Stanbic IBTC Holdings raised N37.10 billion at an issue yield of 12.1 percent and 5 percent respectively.

Dufil Prima Foods recorded an outstanding value of N28.85 billion at an issue yield of 15 percent, while Nigerian Breweries raised N27.13 billion in CPs at a rate of 14 percent.

Read also:Emerging Africa Capital commercial paper issuances record 125% subscription

Rand Merchant Bank issued N28.13 billion in CPs in two issuances at the rate of 12.3 percent and 13.3 percent respectively.

Coleman Technical Industries and Cardinal Stone Partners recorded outstanding values of N21 billion and N20 billion respectively.