Commercial papers up 89% in H1 as firms raise N789 bn

The issuance of commercial papers in Nigeria surged by 89 percent in the first half of 2023, with firms raising a total of N789 billion from the short-term debt instrument, BusinessDay’s findings have revealed.

Data sourced from FMDQ Group showed the value of commercial papers recorded 104 issuances with a total value of N789.20 billion compared to 55 issuances with a total value of N498.52 billion in the first half of 2022.

“The commercial paper market experienced a surge in activities as companies sought to address their working capital and financing needs amidst the cash crunch at the beginning of the year,” Merristem said in a report.

Henry Obiekea, managing director of FairMoney Nigeria, a financial technology company and credit-led digital bank said his firm’s decision to issue N2.5bn commercial paper in the first half of 2023 was a key strategy aimed at accessing local capital to drive business growth.

“The commercial paper and the first issuance are part of our underlying funding strategy to help drive the business. When we started this business about 6 years ago, one of the things that was critical and a key pillar for growth was to ensure that the business consistently has adequate capital and funding to grow,” Obiekea told BusinessDay.

Apart from FairMoney, Fast Credit also announced the successful completion of its N3 billion commercial paper series 1, 2 & 3 issuance in the first half of 2023.

“This was the first attempt of the company to raise funds from the capital market and its oversubscription was a clear reaffirmation of the confidence of our investors and stakeholders in the unique value we are creating in the financial industry,” Emeka Iloelunachi, CEO of Fast Credit said.

Kelvin Atafiri, the CEO of Cavazanni Human Capital Limited said the current low yield in the money market is a major attraction for businesses to play in that segment of the market.

“We have seen an increasing issuance recently due to the current low yield in the money market environment amid the expectation of a further rise in yield,” Atafiri said.

On the sustainability of this source of funding, Atafiri said it “depends on the financial health of the company. The capacity of a borrower to repay is an important part of the credit industry. This, coupled with the trajectory of yields within the market will dictate the sustainability of the strategy.”

BusinessDay findings showed that companies issued commercial papers across financial services, information and communication technology, cement, trade, agriculture, manufacturing, services, and real estate sectors.

The companies include MTN Nigeria, Flour Mill Julius Berger, DLM Capital and Dangote Cement.

In the first half of 2023, MTN Nigeria led the pack with the issuance of N125 billion in commercial papers to boost its short-term working capital and funding requirements.

MTN Nigeria issued 188-day commercial papers at a yield of 11.00 percent and 267-day commercial papers at 12.50 percent.

The company had two commercial papers of similar maturities issued last April. The first having a tenor of 184 days was priced at 7.5 percent while the second running for 254 days carried an 8.5 percent yield.

BusinessDay’s findings showed Flour Mills of Nigeria Plc series 1 and 2 Commercial Paper (CP) issuance of up to N40 billion under its N200 billion commercial paper programme closed last February.

“Companies are exploring the debt market, including seeking commercial papers, which are short-term and may provide some sort of bridge finance pending when there is clarity in the rate environment,” Sunday Oyeyemi, a Lagos-based analyst said.

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.

“We can’t say commercial paper is better than equity or vice versa. They both have advantages and disadvantages. The use of funds determines the purpose of funds and the funding source required,” Oyeyemi said.