16 listed companies raise N339.5 billion on commercial paper in 2021
MTN Nigeria Communications (MTNN) Plc, Dangote Cement Plc and 14 others raised N339.46 billion on Commercial Papers (CP) in 2021.
Commercial papers are short-term debt securities generally issued by creditworthy companies seeking to raise funds from the public to meet their working capital needs, as a viable alternative to bank credit. Simply put, companies borrow money from the public by issuing short-term, usually unsecured, promissory notes with the promise of repayment on the due date.
The difference between the CP and the redemption value on the maturity date is the haircut, which is fixed for the life of the instrument. Since the interest applicable to the instrument is fixed prior to issuance, CPs are considered fixed income securities. Commercial paper maturities generally last several days and do not exceed 270 days. CPs are short-term debt financing securities. They are usually issued at a reduced price.
These funds were raised, admitted and listed on the FMDQ Securities Exchange Limited platform.
The Nigerian commercial paper (CP) market has remained a viable option for corporate bodies looking to raise funds to meet working capital shortfalls, as well as other short-term expenses.
Committed to fostering the development of the Nigerian financial market by championing and supporting market-driven strategic initiatives, FMDQ Securities Exchange, a financial securities registration, listing, quotation, trading and trading platform, has approved listing of all funds.
As short-term debt instruments, CPs are traded in the money market, as opposed to the capital market, which is more suitable for longer-term securities. CPs can be issued and held by individuals, depository banks, legal persons registered in Nigeria, unincorporated legal persons, non-resident Nigerians and foreign institutional investors.
Meanwhile, the current business climate, marred by the impact of the coronavirus pandemic, has seen most companies and business entities turn to debt capital markets as a viable avenue to efficiently raise capital in order to to meet their financing needs for business expansion and/or work. capital management, among others.
Data on FMDQ showed that Coronation Merchant Bank Limited in the 12 months of 2021 raised N76.43 billion, one of the highest CPs on FMDQ Exchange followed by MTN Nigeria and Dangote Cement Plc who respectively raised 73.51 billion naira and 41 billion naira.
Union Bank of Nigeria (UBN) raised a total of N34.96 billion, United Capital raised N19.72 billion, while FSDH Merchant Bank launched N19.6 billion and FSDH Funding SPV Plc, a ad hoc entity created to raise capital from the Nigerian. The Debt Capital Market for FSDH Merchant Bank has also raised N12 billion under its various CP issuance programs.
The others are Total Nigeria (15 billion naira); Mixa Real Estate, (13.36 billion naira); Valency Agro Nigeria, (12.36 billion naira); FBNQuest Merchant Bank Limited, (N7.34 billion); Nigerian Breweries (4.66 billion naira); Prima Corporation Limited, (N3.57 billion); Eunisell Limited, (N3.50 billion); DLM Capital Group Limited, (N2.25 billion); while TrustBanc Holdings Limited, (N0.20 billion).
FMDQ Group CEO, Mr. Bola Koko, stated that “in line with its commitment to market development, FMDQ Exchange will continue its efforts to support issuers with tailored financing options to enable them to achieve their strategic objectives. , to deepen and effectively position the Nigerian Debt Capital Market (DCM) for growth, in support of achieving a globally competitive and vibrant economy.
Managing Director/CEO of Highcap Securities, Mr. David Adonri, said that many companies no longer have the credit of their bankers for the volume they need to run their businesses; that’s why you see companies resorting to fundraising through commercial papers.
He explained that raising funds through the issuance of commercial paper is similar to obtaining loans from banks, particularly in terms of the fixed cost of funds, but the difference is that CP funds come from the general investing public.
Moreover, said Adonri, the recent CP market rush is also not unrelated to the lack of activity in the primary equity market, adding that “the primary market has been dormant for a long time because many companies cannot raise funds. the.
“Of course, we have to look for another source of funding; that’s part of the reason why you’re seeing companies adopting commercial paper lately, although CP is short-term debt that’s basically used to finance short-term projects.
PAC Holdings analyst Mr. Wole Adeyeye noted that most Nigerian companies need to increase production to meet the increased demand in the country in 2021, hence the need for additional capital.
He explained that since returns on short-term instruments are relatively low during the period, most companies view CPs as one of the cheapest ways to raise their capital, saying that an active market CP paper offers companies the opportunity to raise capital to meet their needs. short-term financing obligations.
He also noted that as an investment tool, CPs help diversify an investor’s portfolio, thereby reducing overall portfolio risk, noting that “the short-term nature of CPs also allows for a return on quick investment and allows investors to remain relatively liquid. All of these contribute to a dynamic and robust financial system, thus effectively and consistently contributing to the economic growth and development of the country.