In Three Months, Commercial Papers Hit N539bn
The value of quoted commercial papers on the FMDQ Exchange stood at N539.22bn at the end of the first quarter of 2023 with the total outstanding value of CPs rising to N669.36bn at the end of the same period.
According to monthly reports from the FMDQ exchange, there has been a sustained increase in commercial papers quotations since the beginning of the yea.
Quoted CPs were issued by institutions from various sectors including real estate, financial services, manufacturing, agriculture and health.
In February 2023, the total value of CPs quoted on the FMDQ Exchange was N101.84bn, representing a MoM increase of 22.40 per cent (N18.64bn) from the value of CPs quoted in January 2023.
Quoted CPs were issued by institutions from various sectors including financial services, real estate, manufacturing and construction.
For March 2023, the total value of CPs quoted on the FMDQ Exchange was N354.18bn, representing a MoM increase of 247.80 per cent (N252.34bn) from the value of CPs quoted in February 2023.
Quoted CPs were issued by institutions from various sectors including manufacturing (10), agriculture (4), financial services (4), real estate (2), telecommunications (2), commodities trading (2), and general commerce (1).
As a result, the total outstanding value of CPs increased MoM by 82.76 per cent (N303.11bn) to N669.36bn. In January 2023, CPs with a total value of N113.10bn matured and were redeemed.
Historic data showed that the figures for the first three months of 2023 were higher than the preceding seven months which recorded quoted CPs blow N80bn.
The value of total outstanding value of CPs has also consistently risen since December to N669.36bn at the end of March, which is the latest figure from the FMDQ exchange.
Speaking on the trend, the Chief Executive Officer at Cowry Asset Management Limited, Johnson Chukwu, said that the high interest rate was making companies head to the money market to seek funding as well as the ease of issuing commercial papers.
He said, “Second and most important fact is that we are now dealing with a high-interest environment. During this period of high-interest rates, borrowers do not want to borrow long-term debts at such high-interest rates.
“So, if interest rates are high, borrowers would rather want to borrow short term, because if you borrow long term, you get yourself locked in a long term obligation and commitment for maybe four to five years, sometimes, longer than that. What you find is that the temporary funding needs of companies are now being made at the CP/money market space,” Chukwu said.
The financial expert added that commercial papers reduce the cost of borrowing from banks.
He said, “If you have to borrow from banks, you have to pay fees and all of that. By going the route of commercial papers, they are going directly to the lenders or the investors instead of using the banks as an intermediation channel. By accessing the Commercial paper market directly, they are borrowing directly from the depositors. The cost of such borrowing is normally lower than if they have to go to the bank and pay the bank’s fees.”
For an analyst at Parthian Partners, Okiki Oladipo, the current low yield in the money market is a major attraction for businesses to play in that segment of the market. Oladipo, however, said that there are expectations that the yield will rise.
“We have seen an increasing issuance recently due to the current low yield in the money market environment amid the expectation of a further rise in yield,” she said.
On the sustainability of this source of funding, Oladipo said it “depends on the financial health of the company. The capacity of a borrower to repay is an important part of the credit industry. This, coupled with trajectory of yields within the market will dictate the sustainability of the strategy.”
