Commercial paper issuance surges as companies raise N249bn

Issuance of short-term corporate debt securities soared as Nigerian companies took advantage of the low cost of funding and short maturity period to bolster their working capital.

In the first half of 2022, the value of commercial paper issued was 249 billion naira, 7% higher than the 233 billion naira raised during the same period last year, according to data from FMDQ Group.

According to market analysts, Nigerian companies are opting for commercial papers for working capital purposes, especially because they are cheaper and used for quick investment needs.

“The issue of commercial paper by companies aims to meet working capital needs. Also, it is cheaper to issue while equities are long-term and expensive compared to debt instruments in general,” said Sesan Adeyeye, analyst at CSL Stockbrokers Limited.

“We cannot say that commercial paper is better than stocks or vice versa. They both have advantages and disadvantages. The use of the funds determines the purpose of the funds and the source of funding required,” he said.

Commercial papers are money market securities issued by large corporations to obtain funds to meet short-term debt obligations such as payroll and are only backed by the promise of an issuing bank or company to pay the face amount on the due date, which is usually 270 days or less.

According to Adeyeye, equity is used to fund business growth either internally through business expansion or inorganically through mergers and acquisitions.

Olaolu Boboye, an analyst at CardinalStone, said some companies would prefer to opt for commercial paper because it can be wiped off their balance sheets in a year, while issuing shares would require reducing the proportion of ownership of the current shareholder(s). .

Companies that issued commercial paper in the first half include MTN Nigeria Communications Plc, Lekki Gardens Estates Limited and Lekki Gardens Estates Limited.

MTN Nigeria Communications led the pack with the issuance of N127 billion Series 1 and 2 Commercial Paper under its registered N150 billion program.

Also read: How FBNQuest is supporting the growth of commercial paper issuance in Nigeria

The issue consisted of two terms – a 184-day series issue priced at a yield of 7.50% and a 254-day series 2 issue priced at an 8.50% yield.

According to the telecommunications giant, the issuance was in line with its strategy of diversifying funding options, with the proceeds going towards working capital and general corporate purposes.

Lekki Gardens Estates Limited has signed a N25 billion commercial paper approved for the company by the FMDQ Security Exchange Limited.

Richard Nyong, Managing Director of Lekki Gardens Estates Limited, said this would help deepen its market offering to customers and create value for all stakeholders.

NOVA Merchant Bank has announced the issuance of N20 billion Series 1 and 2 Commercial Paper under Nova Merchant Bank Limited’s N50 billion program.

The bank said proceeds from the commercial paper would be used to fund short-term working capital needs and for general corporate purposes.

FBNQuest Merchant Bank Limited, a subsidiary of FBN Holdings Plc, issued commercial paper worth N15 billion to investors.

The bank said the debt would help it meet its short-term liquidity needs and give it access to alternative and cheaper sources of funding.

Rand Merchant Bank Nigeria Limited has sold N15 billion worth of commercial paper to investors.

The paper is offered in two tenors of 182 days and 270 days, according to the details of the exercise, which has FCMB Capital Markets Limited as its broker.

According to the financial institution, the issue resulted from the need to obtain funds for its short-term working capital needs and for general corporate purposes.

Veritasi Homes and Properties has signed its commercial paper program worth N10.00 billion, which has been approved by the Listings and Markets Committee of the Board of Directors of the FMDQ Securities Exchange.

The program allows the company to raise funds for up to 270 days in the debt market at such future time as it deems appropriate.

United Capital Plc has issued N12.48 billion of Series 8 Commercial Paper under its N50.00 billion Commercial Paper Issuance Program on its platform.

The company said the proceeds would be used to fund short-term working capital needs.

Neveah Limited has announced the listing of its N5.7 billion Series 3 and 4 Commercial Paper issues on the FMDQ exchange.

He said the show was in line with the company’s strategic objective to evolve as a leading trader and exporter of world-class quality agricultural and mineral products for its customers while ensuring a transparent business approach. .

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