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16 Listed Firms Raise N339.5bn On Commercial Papers In 2021

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MTN Nigeria Communications (MTNN) Plc, Dangote Cement Plc and 14 others raised N339.46 billion on commercial papers (CPs) in 2021.

Commercial papers are short-term debt securities typically issued by credit worthy corporations looking to raise funds from the public to meet working capital requirements, as a viable alternative to bank credit. In simple terms, companies borrow money from the public by issuing short-term promissory notes, usually unsecured, with the promise of repayment at the date of maturity.

The difference between the CP and the redemption value at the date of maturity is the discount, which is fixed for the tenor of the instrument. Given that the interest applicable to the instrument is fixed prior to the issuance, CPs are considered fixed income securities. Maturities on commercial paper typically last several days, and no longer than 270 days. CPs are short-term debt financing securities. They are usually issued at a discount.

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 entities looking to raise funds to meet shortfalls in their working capital, as well as other short-term expenditures.

Committed to fostering the development of the Nigerian financial market by championing and supporting strategic market-driven initiatives, FMDQ Securities Exchange, a platform for the registration, listing, quotation, trading and recording of financial securities, approved the quotation of all the funds.

Being short term debt instruments, CPs are traded on the money market as opposed to the capital market which is better suited for longer-term securities. CPs may be issued to and held by individuals, deposit money banks, corporate bodies registered in Nigeria, unincorporated bodies, non-resident Nigerians and foreign institutional investors.

Meanwhile, the current business climate, marred by the impact of the coronavirus pandemic has seen most corporates and business entities look to the debt capital markets as a viable avenue to efficiently raise capital in order to meet their financing needs towards business expansion and/or working capital management, amongst others.

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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 that raised N73.51 billion and N41 billion respectively.

Union Bank of Nigeria (UBN) raised a total N34.96 billion, United Capital raised N19.72 billion, while FSDH Merchant Bank floated N19.6 billion and FSDH Funding SPV Plc, a special purpose vehicle set up to raise capital from the Nigerian debt capital market for FSDH Merchant Bank also raised N12 billion under their various CP Issuance Programme.

Others are Total Nigeria, (N15 billion); Mixa Real Estate, (N13.36 billion); Valency Agro Nigeria, (N12.36 billion); FBNQuest Merchant Bank Limited, (N7.34 billion); Nigerian Breweries, (N4.66 billion); 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).

The CEO of FMDQ Group, Mr Bola Koko, stated that, “in keeping with its commitment to the development of the market, FMDQ Exchange shall sustain its efforts in supporting issuers with tailored financing options to enable them achieve their strategic objectives, deepen and effectively position the Nigerian debt capital market (DCM) for growth, in support of the realisation of a globally competitive and vibrant economy.”

The managing director/CEO, Highcap Securities, Mr. David Adonri, said a lot of companies are no longer enjoying credit from their bankers to the volume they need to run their businesses; that is why you see that corporates are resorting to raising money through commercial papers.

He explained that raising funds through issuance of commercial papers is similar to getting loans from banks especially in respect of fixed cost of the funds, but the difference is that the CP funds come from the general investing public.

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Additionally, Adonri said, the recent rush to the CP market would not also be unconnected to the dearth of activity in the primary equities market, adding that, “the primary market has been dormant for a long time since a lot of companies cannot raise fund there.

“Of course, you have to look for an alternative source of funding; that is part of the reason why you see companies embracing commercial papers of late, though CPs are short term debt that are basically used to finance short term projects.”

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, saying, an active CP paper market provides companies with the opportunity to raise capital to meet their short-term funding obligations.

He also noted that, as an investment tool, CPs help to diversify an investor’s portfolio thereby reducing the overall portfolio risk, pointing out that, “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.”

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