MTN Nigeria has announced intentions to issue N100 billion commercial paper notes through its established Commercial Paper Issuance Programme. The disclosure was made through a corporate notice submitted to the Nigerian Exchange Limited. The company explained that this move is in line with its strategy to broaden its financing alternatives, with the raised funds earmarked for immediate working capital and funding needs. These commercial paper notes, designated as series 6 and 7, are part of the ongoing issuance program.
MTN’s inaugural commercial paper issuance took place in June 2020, resulting in N100 billion being raised, with a remarkable subscription rate of 400%. As the cost of funds increases, several companies have opted to use commercial papers as a means to secure short-term funding. Notably, the total value of quoted commercial papers on the FMDQ Exchange reached N539.22 billion by the close of the first quarter in 2023.
FMDQ Exchange Monthly Reports Indicate Sustained Rise in Commercial Paper Quotations Throughout the Year.
Commenting on this trend, Johnson Chukwu, CEO of Cowry Asset Management Limited, explained that the combination of high-interest rates and the simplicity of issuing commercial papers has led companies to turn to the money market for funding.
Chukwu emphasized, ‘Another significant factor is that we are currently navigating a period of elevated interest rates. In such an environment, borrowers are reluctant to secure long-term debts at these elevated rates.’
He elaborated, stating that when interest rates are high, borrowers prefer short-term loans to avoid long-term financial commitments that may span four to five years or more. This has resulted in companies addressing their immediate funding requirements through the commercial paper/money market avenue.
Furthermore, Chukwu pointed out that commercial papers effectively lower the cost of borrowing from traditional banks.
As part of efforts to tackle inflation, the Central Bank of Nigeria has executed its fourth consecutive interest rate hike in 2023, bringing the rate to 18.75%.
Meanwhile, the National Bureau of Statistics reported that the inflation rate surged to 24.08% in July, up from June’s 22.79%.”