Businesses can tap non-bank debt market as Commercial Papers hit N1.06 trillion

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The logo of the Nigerian Stock Exchange is pictured in Lagos, Nigeria November 9, 2016. REUTERS/Afolabi Sotunde

Transaction value in Commercial Papers (CPs) market in Nigeria has risen to N1.06 trillion from zero level in 2013, raising fresh window of opportunity for businesses looking to tap the non-bank debt market for short-term capital and investors seeking to diversify their portfolios.

Data from FMDQ OTC Securities Exchange, showed that between 2014, when FMDQ undertook to revive the comatose market, to-date, a total of 17 CP issuers have been registered on the FMDQ platform, while a total of 74 CP programmes valued at N504.71 billion were issued within the period.

Out of the N504.71 billion issued CP programmes, N316.48 billion worth of CP matured and was paid; another group of N5 billion CP programmes were rolled over and paid, while N182.22 billion CPs are still running.

Breakdown showed that financial services companies comprise 79 percent of the registered issuers as at May 2018, followed by manufacturing companies, which make up 16 percent of the issuers, while the fast moving consumer goods (FMCGs) companies and real estate companies account for the remaining three percent and two percent of the issuers respectively.

According to the FMDQ, the zero performance witnessed in the market prior to 2014 followed extended period of inactivity, which significantly weakened issuers’ interest and diminished investors’ confidence.

It added that extreme market irregularities which characterised the Nigerian CP market prior to the release of the Central Bank of Nigeria (CBN) guidelines on the Issuance and Treatment of Bankers’ Acceptances and Commercial Papers [2009] saw the sharp decline of the then market from trillions of Naira worth to zero level by 2013.

It, however, stated that key initiatives and strategies adopted in collaboration with the CBN have reinvigorated the market, making it attractive for issuers and investors.

Rolling out the impressive figures the FMDQ stated: “CPs, which are short-term debt financing instruments issued for a period not exceeding 270 days, present a cost-effective and stable means of sourcing scarce capital when compared to traditional bank loans and enable businesses diversify their funding sources.

“It is therefore, commendable that at such time when banks, non-bank financial institutions and small & medium scale enterprises are striving to flourish despite the economic challenges in the country, the CP market can be looked to, to provide a viable, stable and cost-effective means for the achievement of their business objectives/goals.

“In addition, by accessing the CP market, businesses can build confidence in their brand as well as raise their corporate profiles ahead of tapping the market for longer-term debt such as bonds in preparation for the impact of banks implementation of Basel 3 liquidity management principles.”

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