Corporate entities issue N220b CPs to boost working capital

The commercial papers (CPs) market has continued to witness a surge in activities as corporates that suffered exposure to foreign exchange (FX) liabilities seek cheaper funds to boost working capital and navigate uncertainties.

This is despite the hike in interest rates that has raised the yield in Federal Government treasury bills and OMO issuance to 27 per cent. Consequently, companies have already issued close to N220 billion in commercial paper as of February 2024, according to data obtained from FMDQ Securities Exchange.

Commercial papers (CPs) are money-market securities issued by large corporations to obtain funds to meet short-term debt obligations like payroll and are backed only by an issuing bank or company’s promise to pay the face amount on the maturity date, which is usually in 270 days or less.

The FX losses suffered by many listed firms, especially those in the Fast-Moving Consumer Goods (FMCG) sector despite strong operating performance, massively eroded their working capital, forcing them to issue CPs.

These firms are currently flooding the debt market to raise short-term instruments that would enable them to refinance and pursue future expansion plans since it has become one of the cheapest ways to increase their capital as yields on short-term instruments are relatively low compared to other instruments.

Flour Mills of Nigeria Plc, at the weekend, opened the bid for investors to buy into its Commercial Paper debt instrument as it seeks to raise an additional N48 billion to boost its working capital.

The offer, which opened on April 4 and will close on April 9, is part of the company’s N200 billion commercial paper issuance programme. The series 7 and 8 commercial paper sales to the investing public have 180-day and 254 tenors at the rate of 23.5 percent and 25.5 percent with October 7 and December 20 being maturity dates.

Flour Mills Plc, incurred N31.48 billion in FX loss. The company recorded a pre-tax profit of N1.2 billion in the quarter ending September 30, 2023, marking a 13.8 per cent increase year-on-year from the N1.05 billion recorded in the corresponding quarter in 2022.

According to the group’s financial statements for Q2 2023/2024, the PBT recorded during the quarter modified the group’s H1 2023/2024 pre-tax loss to N8.14 billion.

During the quarter under review, the group generated N508.3 billion in revenue. After deducting the sales cost of N453.1 billion, the group’s gross profit reached N55.2 billion, marking a 55.4 per cent increase compared to the N35.4 billion gross profit from the corresponding period in 2022.

Based on the half-year financial results for 2023/2024, the group earned N964.6 billion in revenue, marking a 33.87 per cent increase compared to the previous fiscal year’s corresponding period.

However, due to unrealized FX losses in Q1 2023/2024, the group reported a pre-tax loss of N8.14 billion, marking a 197 per cent decline from the N8.38 billion pre-tax profit in the corresponding period of the previous fiscal year.

Dangote Sugar Refinery Plc (DSR) floated series 2 and 3 CP offers of up to N50 billion under its N150 billion CP issuance Programme which closed on Friday, 05 April 2024.

The company, in February 2024 commenced the offering of its series 1 CP of up to N50 billion. The offer opened on Thursday and closed on Tuesday, February 27, 2024.

Stanbic IBTC Capital served as the Lead Arranger of the Commercial Paper while Absa and Greenwich Merchant Bank were the Joint Arrangers. According to the company, the net proceeds will be used to support Dangote Sugar Refinery Plc’s short-term financing requirements and general corporate purposes. The company incurred foreign exchange losses to the tune of N172.198 billion in its 2023 full-year result, resulting in N108.9 billion loss during the period.

This wiped out its operating profit of N76.68 billion. The losses resulted in a 53 per cent depletion of shareholders’ funds from N171.2 billion to N79.2 billion.

Also, Dangote Cement issued N3.42 billion and N56.59 billion as Series 10 and 11, respectively, under its N300 billion commercial paper issuance program.

The company incurred FX losses of N164.07 billion in the 2023 financial year. However, it recorded a profit after tax of N455.58 billion during the period, representing a 19.7 per cent rise when compared to the 2022 figure.

Head Equity, Planet Capital, Paul Uzum said those companies that had their shareholders’ funds wiped off are in more precarious conditions and would resort to borrowing from the market to bridge the financial gaps in their balance sheet.

They will subsequently raise more capital via rights like Nigerian Breweries has announced. Many investors will prefer to invest in short-tenored instruments when they are not so sure of how high rates may go.

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