Commercial Paper Issuance Spikes as Firms Raise N786.59bn

Issuances of commercial papers (CPs) have risen sharply year on year by 57.80 percent due to heavy fundraising by companies that seek to meet their working capital requirements and fund future expansion plans.

The amount raised by firms spiked by 57.80 percent to N786.59 billion in June 2023 from N498.50 billion as at June 2022, according to data gathered by Afrinvest Securities.

Of course, the number of issuances followed the same growth trajectory as it moved to 104 in June 2023 from 55.

“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.

In the past four years, there has been a deluge of issuances as firms who are in dire need of strengthening their balance sheet took advantage of low cost of finance or low interest rates.

Analysts say some companies would rather opt for commercial papers because they can be cleared from their balance sheets in a year while issuing stocks would require reducing the ownership proportion of the current shareholder(s).

The top 10 CP issuance in the first six months are: Dangote Cement Plc, MTN Nigeria Communications Plc, Flour Mills of Nigeria Plc, Nigerian Breweries Plc, and Sterling Bank Plc.

Leading the pack is Dangote Cement that did four issuances at an amount of N138 billion as at June 2023, while the percent of amount raised was 17.50 percent.

MTN Nigeria who carried out two transactions at a rate of 15.90 percent raised N125 billion.

Flour Mills of Nigeria successfully completed two deals at a rate of 8.30 percent and raised N65 billion.

Nigerian Breweries raised N49.20 billion in CPs at a rate of 6.30 percent in three issuances.

Sterling Bank in two transactions raised N47.90 billion at a rate of 6.10 percent as at June 2023.

Stanbic IBTC Holdings raised N37.10 billion at the rate of 4.70 percent in two transactions.

Julius Berger Plc, the largest construction firm by market capitalisation in Nigeria, issued N30 billion in CPs in two issuances at the rate of 3.80 percent.

Dufil Prima Foods Plc raised N30 billion in tw0 deals at the rate of 3.80 percent while FBN Quest Merchant Bank issued N28 billion in eight deals at the rate of 3.60 percent.

Commercial papers 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.

Market participants say companies may slow down on the pace issuances due to rising interest rates as the central bank embarks on a tightening cycle to tame inflation stoked by the Russia and Ukraine war, cash crunch, and foreign exchange scarcity.

Nigeria’s 10 year bond yield was 12.88 percent on Friday July 21, according to over-the-counter interbank yield quotes for this government bond maturity.

Yields were around 3.96 percent as of October 26, 2020, a period that coincided with the coronavirus pandemic that forced the government to impose a sit at home policy that paralysed the economy.

Nigeria’s inflation rate rose to 22.79 percent in the month of June 2023, representing a 0.38 percent increase from 22.41 percent recorded in the previous month.