Nigerian Firms Raise N583.86bn Via Commercial Papers

In the first half of the year 2024, 31 companies have collectively raised N583.86 billion through the issuance of Commercial Paper (CP) to bolster their working capital needs.

CP is a widely-used unsecured, short-term debt instrument, typically utilised by corporations to finance payroll, accounts payable, inventories, and other short-term liabilities. The maturity period for CP usually spans several days, rarely exceeding 270 days.

Nigerian businesses are increasingly turning to CPs, facilitated by Financial Markets Dealers Quotations (FMDQ) Securities Exchange Limited, as a means to secure capital amidst the ongoing demand for funds to meet short-term debt obligations, finance expansion projects, and settle existing debts.

As of June 30, 2024, 31 companies across various sectors have listed a total of N583.86 billion in CPs on the FMDQ Securities Exchange.

Significant contributions to this total include Dangote Sugar Refinery, which raised N128.87 billion, Flour Mills of Nigeria with N91.16 billion, and Dangote Cement issuing N65.3 billion.

Other companies involved in CP issuance are Nosak Distilleries, Romco Recycling Company, AB Microfinance Bank, Lagos Free Zone Company, Veritasi Homes & Properties, Dufil Prima Foods, Hillcrest Agro Nigeria, Golden Oil Funding SPV, Coronation Merchant Bank, Fewchore Finance Company, Mecure Industries, Smart Residence, Daraju Industries, Capitalstage Technology, VFD Group, DLM Capital, Fidson Healthcare, Johnvents Industries, African Foundries, Coleman Technical Industries, UACN, Skymark Partners, Trust Bank Holdings, Fintrak Software Company, FBNQuest Merchant Bank, Eunisell, SKLD Integrated, Robust International Commodities, and Afrinvest (West Africa).

According to Mr. Ambrose Omordion, Chief Operating Officer of InvestData Consulting Limited, the trend of issuing CPs has become prevalent in the Nigerian capital market. He explained that companies prefer CPs over short-term bank loans due to the lower interest rates associated with CPs, making it a more cost-effective option.

Mr. David Adonri, Vice Chairman of Highcap Securities, highlighted that rising bank interest rates are driving companies to seek alternative, more affordable funding sources like CPs. He noted that the cost of raising funds through CPs is generally lower than bank loans, making it an attractive option for companies.

Also. Mr. Johnson Chukwu, Chief Executive Officer (CEO) of Cowry Asset Management Limited, emphasised that the high-interest rate environment is pushing companies towards the money market for funding. He stated that CP issuance is easier and more favourable during periods of high-interest rates, as companies are reluctant to commit to long-term debts at elevated rates.

Mr. Tajudeen Olayinka, CEO of Wyoming Capital and Partners, noted that CPs offer a cheaper alternative to bank loans and overdrafts, particularly for companies in the real sector with good credit ratings. For financial services companies, CPs provide a viable funding option when traditional deposit mobilisation faces challenges.

This surge in CP listings underscores the growing reliance on the CP market by Nigerian businesses to navigate the high-interest rate environment and meet their short-term funding requirements.