Over N1tn worth of Commercial Papers were listed on the FMDQ Exchange in the first 10 months of this year.
This marked a 279.38 per cent increase in the listing of CPs on the exchange compared to the same period in 2022.
Based on findings the value of new listings/quotations as of October stood at N1.44tn compared to about N379.17bn in 2022.
Within the period under review, the month with the highest value of new listing was March with N354.18bn worth of CPs listed, followed by August with N239bn. October with N36.51bn and June with N82.13bn worth of newly listed CPs were the months with the lowest values recorded.
According to FMDQ data over the months, the financial services sector dominated the CP market with about 55 of the instruments listed coming from there, the manufacturing sector followed with 37, real estate had about 24 CPs listed within the period and the Agriculture sector recorded 19 CPs.
Commercial papers are usually short-term debt instruments issued by corporations. It is often used to finance short-term liabilities such as payroll, accounts payable, and inventories.
The value of the total outstanding value of CPs has also consistently risen since January to N948.56bn at the end of October, which is the latest figure from the FMDQ exchange.
Speaking on the trend, the Vice Chairman of Highcap Securities, David Adonri, said that the high-interest rate was pushing companies to seek alternative sources of funding.
He said, “Generally when interest rate is increasing in the bank, a lot of fund users explore other avenues to raise funds at a lower cost. CP is one of those avenues, especially to finance working capital and it therefore means that most of the demands for funds within this period have been short-term.
“The cost of raising money via CPs may have been lower than borrowing directly from the bank. With the interest rate hikes in the economy, the banks may have latched on to that to increase their lending rate. That may have escalated to a point beyond the comfort of the fund users, so they resort to the use of commercial papers.”
In an earlier chat with The PUNCH, the Chief Executive Officer at Cowry Asset Management Limited, Johnson Chukwu, also echoed the stance that the high-interest rate environment was making companies head to the money market to seek funding. This is also helped by the fact that it is easier to issue commercial papers.
He said, “The second and most important fact is that we are now dealing with a high-interest environment. During this period of high-interest rates, borrowers do not want to borrow long-term debts at such high interest rates.
The Chief Executive Officer of Wyoming Capital and Partners, Tajudeen Olayinka, said, “The only way to explain it is to look at the benefit of using CPs in funding short-term working capital requirements by real sector businesses. Since CP is cheaper than bank loans and overdrafts, it is natural that companies in the real sector of the economy with good credit ratings would find it useful as a short-term funding source, especially when the cost of capital is prohibitive.
“For companies in the financial services sector, their stock in trade is money, and so, will readily make use of the CPs market whenever they have difficulty mobilising deposits from traditional customers. So, this is why you have seen a surge in CP listings in the fixed-income market.”
As of October, Nigeria’s inflation figure stood at 27.33 per cent while the Monetary Policy Rate was 18.75 per cent.
At the annual Bankers’ Dinner, the governor of the Central Bank of Nigeria, Dr Olayemi Cardoso, stated, “As part of this refocus, the CBN has just approved the adoption of an explicit inflation-targeting framework to enhance the effectiveness of our monetary policy. The details and requirements for this framework are currently being finalized alongside the fiscal authorities.”
