Amid Slow Economic Activity, Firms Raised N766.64bn CPs, Corporate Bonds in Q1 2023

Kayode Tokede

Following the need to meet short-term financial obligations amid slow business activities, firms operating in Nigeria raised a whopping sum of N766.64 billion via Commercial Papers and Corporate Bonds in first quarter (Q1) of 2023, an increase of 145 per cent from N313.2 billion raised in) 2022 Q1. 

CP is an unsecured form of promissory note that pays a fixed rate of interest. It is typically issued by large corporations to cover short-term receivables and meets short-term financial obligations, such as funding for a new project.

The firms, according to FMDQ Exchange in its financial markets monthly report, varied across real estate, financial services, agriculture and manufacturing, technology, among other sectors.

THISDAY analysis of the report showed that the total value of CPs quoted on FMDQ Exchange in March 2023 was N354.18 billion, representing a Month-on-Month (MoM) increase of 247.80 per cent or N252.34 billion from the N101.84 billion CPs quoted in February 2023, while the total value of corporate bonds listed in March 2023 was N112.42 billion, representing a 2.24 per cent   or N2.58 billion MoM decrease from February 2023 listings.

The report by FMDQ Exchange disclosed that the total value of CPs quoted on FMDQ Exchange in January 2023 was N83.20billion, but there were no listing of corporate bonds in March

Commenting, the Chief Operating Officer, InvestData Consulting Limited, Mr. Ambrose Omordion, attributed increasing CPs by corporate firms operating in Nigeria to attractive interest rate amid 18 per cent Monetary Policy Rate (MPR). 

The discount rate on quoted CPs dropped to 14.42 per cent in March 2023 from 17.16 per cent in January 2023.

According to Omordion, rates at CPs are attractive and firms are utilizing that opportunity to access capital needed to expand and boost their working capital.

He explained further that potential in Nigeria’s economy despite contractions in February and March of 2023 gives room for firms to borrow.

On his part, the Vice President, Highcap Securities Limited, Mr David Adnori explained that corporate firms opted to access corporate bond and CPs over hike in inflation rate and cost of accessing capital from financial institutions.

According to FMDQ Exchange, outstanding value of admitted corporate bonds and CPs stood at N5.77trillion in Q1 2023.

Outstanding value of admitted corporate bonds closed the period under review at N4.5trillion in Q1 2023, while CPs outstanding value was at N1.26trillion.

The monthly breakdown of CPs showed a total outstanding value increased MoM by 82.76 per cent or N303.11 billion to N669.36 billion in March 2023 from N366.25 billion reported in February 2023. It was at N221.56 billion in January 2023.

The report disclosed that foreign exchange transactions dominated secondary market activity in March  2023, accounting for 31.58 per cent or N7.69trillion  of the total secondary market turnover.

According to the report, the spot FX market turnover was $8.95billion in March 2023, representing a MoM increase of 52.21per cent or $3.07billion from the $5.88billion turnover recorded in February 2023.

“In the FX Market, the Naira appreciated marginally against the US Dollar, with the spot exchange rate  ($/N) decreasing by 0.94basis points or N0.04/$  to close at an average of $/N461.50 in March 2023 from $/N461.54  recorded in February 2023.

“Further, exchange rate volatility decreased marginally in March 2023 as the Naira traded within an exchange rate range of $/N461.00 – $/N462.00 compared to $/N461.00 – $/N462.17 recorded in  February 2023,” the report added. 

Analysts at Coronation in a report said, “In our base case scenario, we see the foreign exchange rate at the I&E FX window at N505/ USD by end-2023.

“We considered: stable growth in non-oil exports boosted by the RT 200 foreign exchange program, continuous injections by the CBN (avg. seven per cent of total inflows on a m/m basis), halt to fuel subsidy payments by end-H1 2023.”

Analysts at Emerging Africa expressed that there is a possibility of another devaluation of the Naira   by the CBN in 2023 in order to enable the reflection of current economic realities.

They said, “We expect the trend of failing reserves to be sustained in 2023 on the back of the limited foreign investment inflows and increasing foreign exchange demand barring any major structural reforms in the Nigerian foreign exchange market. 

“However, the possible removal of fuel subsidiary will improve the growth of the reserves and provide the CBN with resources to defend the Naira.”