Several Corporates Issue Commercial Papers At Time of Covid-19 Downturn

market analysis By Sanya Ademiluyi
In what appears to be a counter-intuitive move, several companies,some of them financial nameplates are issuing commercial papers to take on debt at this time of uncertainty under a covid-19 economic downturn.
A roll call of these corporates include First Bank Merchant Bank, United Capital and MTN.
Investment bank, United Capital has successfully raised N10 billion with 24 per cent oversubscription. FBN Quest merchant Bank has also raised N5billion on the bond market of the Nigerian Stock Exchange ( the first in a series of a planned N50 billion capital raising),while MTN has announced plans to raise N50 billion from the bond market,
One factor is the lowering of yield rates on the bond market which makes it cheaper for corporates to borrow or raise short term capital from the market. FBN Quest said its issue was oversubscribed by 2.4 times which helped to “drive rates down to 10.5 per cent.”
The bond market has been taking a cue from the biggest issuer of debt coupon, which is the federal government which has lowered the yield rates it offers investors from around 9.5 to 11.5 per cent down by over half to around 5 per cent. Indeed, rates for the I year Treasury bill fell to 3.5 per cent while 91 day coupons went for 2.5 per cent at last week’s OMO open market operation auction, reflecting a very liquid money market.
In addition there are few investment articles on the market due to the adverse effect of the covid-19 on economic activities, therefore a lot of idle capital are looking for investment targets .There is also not much competition for debt issuers on the bourse itself, hit by the covid-19 lockdown. Several portfolio investors flush with investment funds are also likely to favour good corporate commercial paper at a time of uncertainty. Last week, in its first quarter report the National bureau of statistics reported that portfolio investment accounted for 24 per cent of foreign exchange inflows of $5.5 billion into the country recorded in the first quarter of the years. Some foreign fund managers who are unable to take out their funds from the country’s financial markets following the early panic due to the covid19 may be settling down to consider some debt coupons with reasonable risks.
In March, the Central Bank of Nigeria CBN shut the country’s Inter-bank foreign exchange and the Secondary market which sells to Bureaux de change, fearing a big surge in demand due to panicky investors, especially foreign market speculators wanting to exit the financial markets.
United Capital’s Group managing director, Peter Ashade commenting on his bank’s successful bond issue noted that it was the first time an investment bank would raise capital through a bond and of such value — N10 billion– from the bond’s market. FBN Merchant Bank is looking to shore up its business capital via a N50billion bond.
Fresh from a fairly good first quarter result performance and a successful annual general meeting this month(May) leading GSM network operator, MTN says it would soon issue a N50 billion bond to raise capital to finance operations and improve its infrastructure.
So,covid19 is not stopping several determined corporates and may well be a good time to raise fresh capital.