By Chinwendu Obienyi
With acute scarcity of Initial Public Offerings (IPOs) in theNigerian stock market over the last few years, Commercial Paper (CPs) issuance is becoming a preffered mode of capital issues in the primary market space with data from FMDQ Exchange showing its value r rising to N3.46 trillion.
Daily Sun investigations reveal that as of end of May 2021, there were about 51 registered CP programmes on the platform of the FMDQ Exchange worth N3.46 trillion.
Corporates that have recently taken the CP route included; BUA Cement, Dangote Cement, Mixta Real Estate, Total Nigeria, Nigerian Breweries Plc, Union Bank of Nigeria (UBN), FSDH Merchant Bank, Coronation Merchant Bank, United Capital, Valency Agro Nigeria Limited and Stanbic IBTC. Others are, MTN Nigeria, Parthian Partners Limited, Fidson Healthcare Plc, TrustBanc Holdings Limited, Flourmills, and Fidelity Bank among others.
Commercial paper is a money-market security issued (sold) by large corporations to obtain funds to meet short-term debt obligations including payroll and is often backed only by an issuing bank or company promise to pay the face amount on the maturity date specified on the note.
The Nigerian CP market prior to release of the Central Bank of Nigeria (CBN) guidelines on issuance and treatment of Bankers’ Acceptances and CPs (2009) which propelled a sharp decline of the then market from trillions worth to zero levels by 2013, was characterised by stark opacity and irregularities.
These constraints left dark clouds hanging over the Debt Capital Market (DCM) as corporate institutions were bereft of alternative financing options to sustain their business expansion activities.
The FMDQ Exchange stepped in with its GOLD Agenda leaning towards making the Nigerian financial markets globally competitive, operationally excellent, liquid and diverse. Investment experts believe this may have triggered the current rising issuance of CPs in the DCM over regular equities financing which in turn is becoming a source of worry to capital market operators, who see the situation as a race that could worsen the 2-year old drought of IPOs.
Before 2008, primary market for equities was an important hub of activities, and the persistent offering of new issues kept the tempo of market expansion and capital formation for the economy. But in recent times, the nation’s bourse, now called the Nigerian Exchange Group (NGX) has found new equity capital issues hard to come by, with SAHCOL being the last of such to list its shares in 2018.
Speaking to Daily Sun in a telephone chat, market operators attributed the trend to over regulation, cost and the weak macroeconomic situation of the country.
The Managing Director, APT Securities, Kurfi Garba, said the current market condition will not encourage companies to do IPOs with economy in comatose. Kurfi explained that no company will be willing to dilute its position or give its shares out at a lower price, adding that the process of doing IPOs is much more costly than having a CP issuance. He said, “Right now, the market is not very high and so if a company decides to come via IPO, it decides to give its shares at a give-away price.