With companies requiring short-term capital to stay afloat, 20 companies raised N421.7billion worth of Commercial Paper (CP) on FMDQ Exchange platform between January and December of 2021, FMDQ trading data has revealed.
The data, which was obtained from FMDQ Exchange website revealed that 36 companies registered CP worth N1.806 trillion and quoted N421.7billion.
CPs are short-term debt financing securities (no longer than 270 days in tenor) consisting of unsecured and discounted promissory notes issued by large corporations with good credit ratings, which can be readily traded.
Due to its relatively short maturity period, CP is referred to as low-risk investments, and offering competitive returns to investors in compensation for the issuer’s credit risk.
The 20 companies that consist of manufacturing, telecommunication, oil & gas, banks, health, agriculture, among sectors have raised CPs on the FMDQ Exchange platform in the period under review.
Analysis of the activities at the CPs market showed that Coronation Merchant Bank Limited in the 12 months of 2021 raised N74.54billion, one of the highest CPs on FMDQ Exchange followed by MTN Nigeria and Dangote Cement Plc that raised N73.51billion and N41 billion respectively.
FMDQ Exchange in February admitted CP valued at N2.34 billion of Coronation Merchant Bank and in March, it issued N14.13 billion CP.
The merchant bank in April issued N21.62billion in CPs but for May 2021, it was N11.46billion. However, in August, the company issued N25billion CPs.
Coronation Merchant Bank has N100billion CP issuance programme on FMDQ Exchange.
FMDQ in 2021 approved the quotation of the MTN Nigeria Communications Plc N19.77 billion Series 3 and N53.74 billion Series 4 CPs under its N200 billion CP Issuance Programme.
Also, Dangote cement in November 2021 quoted a total of N41 billion CP under its N150billion CP issuance programme on its platform.
FMDQ Exchange had announced the quotation of the Dangote Cement N15.20 billion Series 1, N7.96 billion Series 2, and N17.84 billion Series 3 CPs
The proceeds from the Dangote Cement Series 1 – 3 CPs, which were sponsored on the Exchange by Stanbic IBTC Capital Limited – a Registration Member of FMDQ Exchange, was used to support the company’s short-term working capital and funding requirements.
By quoting these CPs on the Exchange, Dangote Cement is availed unique benefits which include, but are not limited to, enhanced investor confidence, transparent/relevant information disclosure on the issue, effective price formation, and global visibility.
THISDAY gathered that Stanbic IBTC Bank Plc and Union Bank of Nigeria Plc were the only banks that raised capital through CP in 2021.
Both raised a total of N65.26 billion and the breakdown revealed that Union bank raised N34.96 billion and Stanbic IBTC, N30.3billion
Analysts, however, noted that expansion in business, according to the National Bureau of Statistic (NBS) third quarter of 2021 guarded these companies accessing short-term capital to expand businesses.
In a chat with THISDAY, analyst at PAC Holdings, Mr. Wole Adeyeye noted that most companies in Nigeria needed to increase their output to meet the increased demand in the country in 2021, hence the need for additional capital.
He explained that since yields on short-term instruments are relatively low during the period, most companies see CPs as one of the cheapest ways to increase their capital.
He said: “Rates are actually dropping across the board. When you look at Treasury Bills auction result last week, you will notice that rates are actually considering 91-day, 181-day and 364-day. What is happening in TB market is what is actually happening in CP
“If these companies were to borrow from banks, they would have likely gotten it at least 15 per cent interest rate. That is even because they are big corporate. If it were smaller companies, they would have probably gotten it between 18 or more interest rate.”
Reacting on role played by CPs in driving these companies and economy growth, FMDQ Exchange in a statement said: “An active CP paper market provides companies with the opportunity to raise capital to meet their short-term funding obligations.
“Also, CPs typically do not create a lien on the company’s assets, and this creates room for enhanced operational flexibility. 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.
“As an investment tool, CPs help to diversify an investor’s portfolio thereby reducing the overall portfolio risk. The short-term nature of CPs also permits a quick return on investment and allows investors remain relatively liquid. All of these enhance a vibrant and robust financial system thereby effectively and invariably contributing to the country’s economic growth and development.”
FMDQ Exchange had noted that an active CP market provides companies with the opportunity to raise capital to meet their short-term funding obligations.
They explained that the instrument typically does not create a lien on the company’s assets, and this creates room for enhanced operational flexibility.
“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.
“As an investment tool, commercial papers help to diversify an investor’s portfolio thereby reducing the overall portfolio risk. The short-term nature of CP also permit a quick return on investment and allow investors remain relatively liquid.
“All of these enhance a vibrant and robust financial system thereby effectively and invariably contributing to the country’s economic growth and development.”
The Managing Director, Highcap Securities Limited, Mr. David Adnori attributed trudge in corporate raising CPs through FMDQ to urgent short-term capital obligations.
He noted CPs instrument not on the NGX and a money market instrument.
Speaking on interest rate, he said: “Not that the interest rate on CP is low, just that these companies need short term fund to meet their daily business obligations. Some of these companies might be having a short fail in working capital. Short term fund is to finance working capital to remain in business. Some might have short-term opportunities to grow their businesses and decided to take advantage of CP to remain buoyant.”
FMDQ said the timely admission of the CP issues, and in general, all securities on the exchange was a testament of the efficiency of the exchange’s securities quotation process.
“As is tradition for FMDQ Exchange, the Coronation Merchant Bank CPs, which were sponsored on the Exchange by Chapel Hill Denham Advisory Limited, a Registration Member (Quotation) of FMDQ Exchange, shall be availed global visibility through the Exchange’s website and systems, governance and continuous information disclosure to protect investors’ interest, credible price formation, amongst other benefits derived from the FMDQ Exchange platform,” it said.