With Dangote Cement’s N50 bn sourcing, more local firms eye CPs as market liquidity up N1.2tr

With Dangote Cement’s N50 bn sourcing, more local firms eye CPs as market liquidity up N1.2tr

The recent sourcing of N50 billion through Commercial Paper (CP) issuance by Dangote Cement Plc has ignited fresh interest among companies to focus attention on that segment of the market, THISDAY checks have revealed. CPs are unsecured promissory notes with a fixed maturity of about nine months 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. CPs present a cost-effective and stable means of sourcing scarce capital as against to bank loans. These financial instruments also 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.

The once active CP market had its average monthly outstanding value dipped from N1trillion, in 2008 to N9.8 billion in 2013, due to an unprecedented lull.

However, the FMDQ OTC Securities Exchange, got the approval of the Central Bank of Nigeria (CBN) to revive the CP market in 2014. And since then the market has become active again with financial institutions and other corporate bodies raising short term funds from the CP market.

Some of the firms that have accessed the CPs market are: Stanbic IBTC Bank Plc, Wema Bank Plc, Nigerian Breweries Plc, Guinness Nigeria Plc, Access Bank Plc, FSDH Merchant Bank Limited, Ecobank Nigeria Limited and UACN Property Development Company Plc and recently Dangote Cement Plc.

In all, companies have so far raised over N1.2 trillion from the CP market.

The N50 billion raised by Dangote Cement Plc was part of its N150 billion domestic CP debt issuance programme.

The Group Chief Executive Officer of Dangote Cement, Mr. Joseph Makoju had, during the listing of the CP on the FMDQ OTC, said by promoting transparency, governance, integrity and efficiency in the CP market, exchange was encouraging issuers to explore alternative funding sources in the Nigerian capital markets.

THISDAY gathered that more companies who need short-term capital are now looking to tap the CP segment of the market.

This would even be bolstered by the decision of the Monetary Policy Committee to encourage large corporates to issue CPs to the market.The Chief Executive Officer of a leading investment bank told THISDAY that given the fact all the CPs have experienced oversubscription, it indicates there is liquidity.“I can tell you that more companies are coming into this space. What is important now is for companies […]

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