Appetite for CPs Rise as Sterling Bank Raises N35bn
In confirmation of THISDAY report last week that more firms were eying the Commercial Paper (CP) market, Sterling Bank Plc has raised N35 billion from the market under its N100 billion CP programme.
CPs, which are unsecured promissory notes with a fixed maturity of about nine months are issued by companies to raise money to meet short-term finance obligations.
The notes are backed by the promise of the issuers to repay based on certain agreed terms.
They present a cost-effective and stable means of sourcing scarce capital as against to bank loans and provide investors avenue to diversify their portfolios and given their short-term nature, they permitting high relative return on investment, and allow investors to remain relatively liquid.
More companies have been accessing the CP market to fund their operations, a development that has increased the value of registered CPs to N1.302 trillion as at July 31, 2018.
The latest firm to access the CP market was Sterling Bank Plc, which issued N35 billion worth of the instrument.
According to the financial institution, the CP is being issued in Series 6 and Series 7.
While the Series 6 is issued for a tenor of 177 days at a yield of 13.63 per cent, the Series 7 is being issued for 268 days tenor at 13.9699 per cent.
The bank said the proceeds of the CP would be used to boost its working financing needs.
An investment banker and Co-founder of Cardinal Stone Partners Limited, Mr. Mohammed Garuba told THISDAY in an interview that CPs had increased largely because the banks have refused to drop interest rate.
According to him, depositors are seeing very low interest rates.
“CP in any market is a rate higher than deposits rates, but lower than bank interest rates. So, the CP market is getting very viable now because depositors instead of going to banks to deposit their monies are going to the companies to invest in CPs. So, the more CPs we get, the possibility of banks coming to do their roles of intermediation,” he said.
He said CP market is the way to go, stressing, “even the banks are doing CPs. If I have some bad loans, one way to manage it is to take CPs and use it to reduce it. Every normal company is going to continue to do CPs until banks go back to their intermediation role. People are taking their deposits from banks and investing in CPs at slightly higher rates as opposed to doing fixed deposits with the banks.”
The Managing Director/Chief Executive Officer of FMDQ OTC Securities Exchange, Mr. Bola Onadele.Koko had said the platform had brought an unprecedented transparency, governance and integrity.
“The benefits of transparency and governance offered by FMDQ around its CP quotation process and post issuance of the CPs cannot be over-emphasised as they directly impact, not just the issuers, but investors and the market regulators,” he said.