By Omodele Adigun
“As part of its key strategic mandates to develop the market, FMDQ provides a robust platform for the quotations of Commercial Paper (CP).
“Quotation of CPs on FMDQ gives issuers access to a wide range of knowledgeable and capitalised investors (qualified institutional and eligible individual investors) through FMDQ Members. Liquidity is enhanced through the trading of the instruments by FMDQ Dealing Members and other stakeholders such as Pension Fund Administrators (PFAs), fund managers etc. On the other hand, investors are able to diversify their portfolios and also improve the returns on their investment. Improved liquidity serves to ensure ease of entry and exit from the CP market by these investors,” says Financial Markets Dealers Quotation (FMDQ) on its website.
To key into this, Access Bank Plc recently got its N8.45 billion series 1; N4.22 billion series 2 and N22.33 billion series 3 commercial paper notes, under its N100 billion CP programme, on admittance and quotation at the FMDQ OTC market.Commenting on this, its Managing Director/Chief Executive Officer, Herbert Wigwe, said his bank’s N35 billion CP would boost its liquidity management efforts in line with global best practices.
His words: “Access Bank was able to raise N35 billion from the money market, the largest listed commercial paper issuance ever in Nigeria despite the current economic headwinds and prevailing tight liquidity situation in the country. These issues will allow us create a liquidity buffer as we align our liquidity management to international best practice.”
What is commercial paper?
The Central Bank of Nigeria (CBN) defines it as “an unconditional promise by a person to pay to the order of another person a certain sum at a future date. Such an instrument may or may not carry the bank’s guarantee.” Where the bank guarantees the CP to make it more marketable in the money market, the instrument is said to have acquired the force of a Banker’s Acceptance and the bank incurs a contingent liability. Where the CP is not secured or guaranteed by the bank (clean CP), it needs not be reported as a contingent liability.
In its November 2009 Guidelines on the Issuance and Treatment of Bankers
Acceptances and Commercial Papers, the apex banks stipulated the following conditions for issuing and investing in the instrument.
A CP qualifies as a financing vehicle under these guidelines: if the issuer has three-year audited financial statements, the most current not exceeding 18 months from the last financial year end; and the issuer has an approved credit line with a Nigerian bank acting as an issuing and payment agent (IPA), where the bank guarantees the issue.
Investors in CPs shall be made aware of the identity of the issuer; CPs shall only be guaranteed and not accepted since the intermediating bank is only a secondary obligor.
When a bank invests in a CP by disbursing its own funds, the transaction shall be reported on balance sheet and treated as a loan. However, if the bank merely guarantees the instrument, it shall be shown off-balance sheet as a contingent liability.Resale of CPs by banks/discount houses shall be accompanied by adequate documentation which should be provided to Examiners on request.
The CP shall be issued for maturities of between 15 days and 270 days, including rollover, from the date of issue; every issue of a CP is therefore, a separate CP. The capitalization of upfront interest and discount on maturing CP shall be issued at the primary market for a minimum value of N100million and in multiples of N50 million, thereafter.
Investors
CPs may be issued to and held by individuals, deposit money banks, other corporate bodies registered or incorporated in Nigeria and unincorporated bodies, non-resident Nigerians and foreign institutional bodies.”
IPA
Only a Deposit Money Bank and Discount House may act as an Issuing and Paying Agent (IPA )for issuance of CP. Any company proposing to issue CPs shall submit a proposal to the IPA with its rating report issued by a credit rating agency. Companies shall ensure that the proposed issue of CP is completed within the period of two weeks from the date of opening of the issue for subscription.
After the exchange of deal confirmation between the IPA and the issuer, the IPA shall issue physical certificates to the investor or arrange for crediting the CP to the investor’s account with the depository. All IPAs issuing the CPs shall, within three working days from the date of completion of issue, advise the depository on the amount of CPs actually issued.”
Documentation requirements
“The standard documentation requirements for a CP transaction in Nigeria include the following: CP raising mandate; Board resolution to borrow; issuing, placing and paying agency agreement; commercial paper note and bank guarantee, where applicable. Others are investment instruction/investment mandate, investment advice and custodial agreement.The rest are information memorandum on the issuer in the case of clean CPs, latest rating report from the credit rating agency and backstop loan request for guaranteed CPs.”
Rating requirement
Either the issuer of a CP or the specific issue itself shall be rated by a rating agency registered in Nigeria or any international rating agency acceptable to the CBN. An indicative rating must have been obtained by the issuer at the time of submission of the declarations and information to the Central Securities Clearing System (CSCS).
The issuer or the issue shall have a minimum of investment grade credit rating (BBB- or similar rating).
CBN offers $367m for FX forwards
The Central Bank of Nigeria (CBN), yesterday injected another $367.13 million into the interbank foreign exchange (forex) market to meet the forwards requests of customers.
A breakdown of the figure shows that $144.07 million was for 45 days forwards, while $223.06 million was for 60 days.
The Acting Director in charge of Corporate Communications of the apex bank, Mr. Isaac Okorafor, said the move was in line with the bank’s determination to ease the forex pressure on various sectors through forward sales to keep the market liquid.
Meanwhile, the interbank forex market traded $540,000 in early deals at N375 per dollar, near a record low exchange rate witnessed last November. The local currency traded at a record low of N375.50 to the dollar last November on the official interbank market before it reversed losses.
The interbank market traded a total of $3.77 million at multiple exchange rates on Monday. It was quoted at N305.25 per dollar at the morning trading.
Traders said banks were selling dollars bought from international money transfer agents to retail customers at N375 to the dollar.
The currency was quoted at N465 on the black market, 1.5 per cent down from Friday’s close, as pressure was starting to pile up in that market segment despite a series of central bank intervention on the official market to boost liquidity.
The central bank yesterday also asked lenders to set up tellers for retail customers to buy and sell dollars in order to ensure access to hard currency. The regulator also asked banks to process demand for retail forex users within 48 hours.