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FMDQ Exchange Sensitises Stakeholders on Short-term Financing Option in the Nigerian Debt Markets Posted on: December 15, 2020

In line with the mandate of the FMDQ Debt Capital Markets Development (DCMD) Project to maximise the potential of the Nigerian debt markets through capacity development and support for issuers, investors and other participants in the Nigerian debt markets, the DCMD Project, through its Investors, Issuers & Intermediaries Engagement/Education Sub-Committee, organised a sensitisation session for market participants to highlight a viable short-term financing product – Commercial Papers (CP)s– available for corporates to meet their working capital requirements as well as other short-term financing needs.

The recent market conditions occasioned by the COVID-19 pandemic along with other macroeconomic activities such as low-interest rates, have warranted the need to drive awareness amongst market participants on a cheaper alternative source of short-term funding for these corporates, whilst increasing their capital cost-saving, ensuring capital optimisation, and improving brand reputation as well as global visibility. The FMDQ DCMD Project webinar, therefore, focused on demystifying the Nigerian CP market – value propositions, structure, procedures, documentation requirements, and key stakeholders. The webinar afforded the participants with a unique opportunity to acquire first-hand insights from subject matter experts, case studies cutting across issuer, sponsor, solicitors, and other parties to the transaction.

While delivering the opening remarks, Ms. Tumi Sekoni, Managing Director, FMDQ Securities Exchange Limited (FMDQ Exchange or the Exchange), stated that “FMDQ Exchange provides an efficient, transparent, and well-regulated marketplace, wherein issuers enjoy competitive pricing, a diverse investors base, information symmetry, and efficient time-to-market, amongst other laudable benefits, in support of an active and viable CP market in Nigeria. The CP market has not only grown enormously over the years, with circa ₦3.00 trillion registered programmes admitted on FMDQ Exchange, but has also created an opportunity for first time issuers to participate in the debt markets, to enable them create a strong corporate brand/reputation and an optimised capital structure to boost operational efficiency and growth. With the current low interest rate regime in the markets, a unique opportunity presents itself for the sensitisation of market participants on the cheap and alternative source of funding for corporates in the Nigerian debt markets. This webinar, therefore, not only seeks to provide more insight into commercial papers as an alternative source of short-term financing, but also to afford corporates the opportunity to seek further clarity, improve knowledge and dialogue on the Nigerian commercial papers market, and how to participate in same, from and with key stakeholders as well as other subject matter experts in the Nigerian financial markets ecosystem.”

Also sharing insights during the webinar, Mr. Kobby Bentsi-Enchill, Executive Director and Head, Debt Capital Markets, West Africa, Stanbic IBTC Capital Limited & Chairman, Investors, Issuers & Intermediaries Engagement/ Education Sub-Committee of the DCMD Project noted that, “Once upon a time, in the not too distant past, accessing debt financing to fund working capital posed one of the biggest challenges to Finance Directors and Treasurers of even the most well-established corporates in Nigeria. Debt financing was predominantly the preserve of our commercial banks, that priced credit at levels often not reflective of market rates and financial system liquidity. The advent of a well-regulated and transparent commercial paper market has been revolutionary, and the dynamics of working capital financing has changed dramatically”.

Since the resuscitation of the FMDQ-championed CP market reform in 2014, as predicated on the back of the Central Bank of Nigeria’s Guidelines, CPs, which are short-term debt financing instruments issued for a period not exceeding two hundred and seventy (270) days, continue to present a cost-effective and stable means of sourcing scarce capital when compared to traditional loan sources and enable businesses diversify their funding sources. It is therefore, commendable that at such time when banks, non-bank financial institutions and small & medium-scale enterprises are striving to flourish despite the economic challenges in the country, the CP market can be looked to, to provide a viable, stable and cost-effective means for the achievement of their business objectives/goals.

According to Mrs. Ayotunde Owoigbe, Partner at Banwo & Ighodalo, a ready-made answer easily exists for the question, Why CPs? – For unsecured, short-term debt to finance a solid issuer’s inventories, accounts payable and other short-term liabilities at prevailing market rates of return to the savvy, liquid investor within the sanctity of FMDQ’s regulated platform; the question should be why not CPs?”.

The FMDQ DCMD Project is aimed at addressing the challenges hindering the growth of the Nigerian debt markets, by providing a transformation framework with workable solutions that will stimulate growth and accelerate the development of the market to become a world-class, properly functioning debt capital market by 2025. FMDQ Holdings PLC (FMDQ or FMDQ Group) serves as the project office of the DCMD Project, and with the collaboration of its stakeholders, will continue to continue to champion initiatives aimed at making it easier for participants in the Nigerian debt markets to access and raise capital, as well as foster development towards upgrading the market to its global counterparts.