Investors Take Refuge in Commercial Papers as Stock Market Bleeds

Obinna Chima

Investors are fleeing the battered Nigerian stock market and are seeking safety in the Commercial Papers (CPs) market, findings by THISDAY has shown.

The past few weeks has seen increased CP issuance by corporates which were all successful as investors scrambled to partake in it.

For instance, Access Bank Plc on Friday opened the Series 14 of its N100 billion CP Programme, which closed yesterday. The bank sought to raise up to N42 billion in the seventh tranche of its 91-day series to finance asset creation and working capital.

In addition, Dangote Cement Plc is also in the market as it is looking to issue Series 3 & 4 CP under the company’s N150 billion CP Programme to finance short-term working capital requirements and for general corporate purposes.

Prior to the issuance by Access Bank and Dangote Cement, other corporates such as Sterling Bank Plc, Dufil Prima Foods Plc, UPDC Plc and Nigerian Breweries Plc, successfully raised funds from the CP market recently.

CPs, which are unsecured promissory notes with a fixed maturity of about nine months are 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.

They present a cost-effective and stable means of sourcing scarce capital as against to bank loans and provide investors avenue to diversify their portfolios and given their short-term nature, they permit high relative return on investment, and allow investors to remain relatively liquid.

The bearish sentiments in the Nigerian stock market continued last week, pushing the market indicators to a 10-month low.

In fact, the year-to-date decline of the Nigerian Stock Exchange (NSE) All-Share Index worsened to 7.4 per cent on Monday as the stock market maintained a downward trend.

Prevailing weak investor appetite had continued to depress share prices for the past weeks. While the market went down by 2.89 per cent to hit a 10-momth low last week it has opened this Monday on another bearish note, shedding 0.13 per cent.

Specifically, on Monday, the NSE ASI closed lower at 35,399.28, while market capitalisation shed N17 billion to end at N12.9 trillion. The bears were in total control as 26 stocks lost value compared with only 14 that added value.

Speaking in a chat with THISDAY, the Managing Director of Afrinvest Securities Limited, Mr. Ayodeji Ebo, said investors are always seeking for where to maximise returns on their investments.

Aside the switch from investing in stocks, Ebo pointed out that, “a lot of money that used to stay idle on savings and current accounts in banks are no longer being kept in the banks.

“Awareness has increased on fixed income securities and those that had enjoyed the high interest rate we saw last year are now so used to it that they want to invest in anything they are sure of the returns.

“So, even beyond taking money from the stock market, bank customers are no longer leaving their money idle in savings and current accounts. People are trying to maximise returns on their investments.”

He attributed the massive sell-offs on the NSE to political uncertainties and unimpressive results released by some quoted companies.

To an investment banker and Co-founder of Cardinal Stone Partners Limited, Mr. Mohammed Garuba, CP issuance have increased largely because of high lending rate in the market.

“CP in any market is a rate higher than deposits rates, but lower than bank interest rates. So, the CP market is getting very viable now because depositors instead of going to banks to deposit their monies are going to the companies to invest in CPs.

“So, the more CPs we get, the possibility of banks coming to do their roles of intermediation,” he said.

He said CP market is the way to go, stressing, “even the banks are doing CPs. If I have some bad loans, one way to manage it is to take CPs and use it to reduce it. Every normal company is going to continue to do CPs until banks go back to their intermediation role.

“People are taking their deposits from banks and investing in CPs at slightly higher rates as opposed to doing fixed deposits with the banks.”