As investors’ appetite for higher returns continues to swell following rising interest rates, listed/unlisted companies are taking advantage raising a whopping sum of N553.8 billion Commercial Papers (CP) in the last months.
Companies such as Providus bank United Capital, Coleman Technical Industries Limited, FSDH Funding SPV Plc, FBNQuest Merchant Bank, FCMB Limited among others have raised CP on the FMDQ Exchange market in eight months under review.
Commercial Papers are short-term debt financing securities (no longer than 270 days in tenor) consisting of unsecured and discounted promissory notes issued by large corporations with good credit ratings, which can be readily traded.
However, other instruments, despite attractive interest rates are still gaining minimal attention as Etranzact Plc, Capital Hotels Plc, Neimeth International Pharmaceuticals Plc, Ardova Plc, Dangote Cement Plc among others have raised capital through corporate bond, right issue, private placement on the Nigeria Exchange Limited (NGX).
At the start of 2022, FMDQ Exchange approved for quotation the MeCure Industries Limited N490million Series 1 and N1.44 billion Series 2 CPs under its N20billion CP Issuance Programme on its platform.
The chairman/CEO, MeCure Industries, Samir Udani in a statement said, “The issuance will help the company meet its short-term working capital and funding requirements. It will also strengthen our commitment to building and positively shaping the healthcare industry in Nigeria.
Coming on the heels of the quotation of MeCure Industries CPs, the Exchange approved the registration of the Mixta Real Estate N25 billion CP Issuance Programme on its platform.
In January, FMDQ Exchange approved the registration of the Babban Gona Farmers Services Nigeria N15 billion CP Programme on its platform. Babban Gona is a social enterprise that seeks to sustainably improve the lives of smallholder farmers in Nigeria through the provision of comprehensive farming services.
In March, the Exchange approved the quotation of the Coleman Technical Industries N2.40 billion Series 3 and N3.65 billion Series 4 CPs under its N20billion CP Issuance. Coleman Technical Industries Limited is a producer and distributor of electrical wires and cables.
NECIT Nigeria got approval last month for the quotation of its N2.17 billion Series 1 CP under its N20billion CP Issuance Programme.
“With this support, our capacity to unlock value for all stakeholders has been further enhanced,” said Emmanuel Iheagwazi, MD/CEO of NECIT Nigeria, an indigenous company that deals in the manufacturing of car lubricants and engine oil, as well as the importation and sale of base oil.
The Exchange also approved the registration of Skymark Partners Limited N5billion CP. “We expect funds raised under this CP programme to enable us to expand our investment opportunities,” Egie Akpata, the chairman of the company had said.
FBNQuest Merchant Bank Limited, Nigerian Breweries Plc, FCMB Limited and Providus bank are the leading companies with N100billion CP issuance programme on the FMDQ Exchange so far in eight months.
Analysts blamed the dearth of Public Offer market on challenges of hostile and inconsistent macro-economic policies, regulatory, monetary environments and lack of strategic planning for national development.
According to analysts, the CP option represents a capital mismatch for companies using it to finance long-term expansion projects.
The analysts warned that CPs are short-term debt financing securities some of the companies are using the money to finance long term expansion projects, thus putting the stakeholders at disadvantage position in terms of low return on investment or even risk of default.
Analyst and Chief Operating Officer, InvestData Consulting Limited, Ambrose Omordion, said, “Investors anywhere in the world want to make profit or good return on their investment with less risk.
“The unattractiveness of our market despite the rallying oil was as a result of unfriendly business environment, rising insecurity challenges, unclear economic policies and crisis in the nation foreign exchange market. The government and its economic managers should rethink and reformulate policies that will attract more companies to the capital market to boost economic recovery.
“Companies are shunning equity funding due to fear of ownership dilution and high cost of raising funds in stock market. This high cost has reflected on low primary market activities such as Initial Public Offerings, IPOs and others.
”The implication is that the market will lack depth as many sector of the economy are not fully represented on the exchange. This will allow few stocks to dominate the index and restrict investment access. It is not a good strategy for companies to go for CPs and use the proceeds for long-term projects. Even using it for short term funding is not even the best as it will also affect the return on investment when profit is reduced.”
On way forward, he said: “Regulators should review the cost of raising funds and listing requirements to attract more companies to source funds through equity and encourage listing.”
The vice president, Highcap securities Limited, Mr, David Adnori said, “The increased appetite for Commercial Paper is largely driven by the perceived low interest rate environment. Companies believe they can raise capital at a very decent rate which will not be toxic to their business operations and given the low level activities in the capital market, most companies may not want to take the risk of trying to raise equity which may or may not be successful.
”Until we are able to attract a significant portion of companies to the market and increase both domestic and foreign investors’ participation, volatility and market activities in the equities market will remain moderate at the most.
He further explained that, “Capital market regulators could attract more issues to the market with incentives such as reduction in transaction cost, the introduction of tax cuts and eliminating bottlenecks around application processes.”
On why companies prefer CPs, he said: “Raising funds for project expansion and working capital through CP has become a faster and cheaper way for companies to get funding for their business when compared to the cost of raising such funds through the equities market.”