Commercial Paper issuance declines by 75% in Q1 2024, as government securities dominate

In the battle of short-term money market instruments, government-backed securities are currently trouncing commercial papers.

Nairametrics’ data tracking reveals a significant 75% year-on-year decline as per value in the issuance of commercial papers in Nigeria.

In terms of volume, there was a 66% decline, as only 32 CPs were issued in Q1 2024, in contrast with the 95 issued in Q1 2023.

In Q1 2024, CPs totalling N165.36 billion were issued, a significant decline from the N664.14 billion worth of CPs issued during the same period in 2023.

Comparatively, N5.64 trillion worth of treasury bills and N1.01 trillion of OMO-bills were sold during the same period, effectively signalling a huge shift in investors’ sentiment away from commercial papers towards government-backed short-term securities.

CPs issued in Q1 2024

• The major CP issuer during the quarter was Dangote Sugar Refinery which issued a N39.39 billion CP at a discount of 17.08
• Flour Mills of Nigeria also issued a CP worth N32.54 billion at a discount of 15.89%.
• Other CPs issued in Q1 2024 include the N20 billion CP issued by Coleman Technical Industries, N4.84 billion and N3.72 billion Series 27 and 28 CPs issued by FBNQuest Merchant Bank, and the N7.96 billion CP issued by Afrinvest, among others.

Rising Interest Rates

In Q1 2023, yield rates for NT-bills ranged between 1.8% and 14.74%, however, in Q1 2024, yield rates for NT-bills have varied between 4.22% and 21.5%.

• CPs issued in 2023 were at discount rates that gave NT-bills a run for its money.
• For example, VFD Group issued its Series 2 CP at a discount rate of 15.10% in May 2023. CardinalStone issued Series 1, 2, 3, and 4 of its CPs at rates of 13.52%, 13.93%, 13.08%, and 13.11% respectively.
• Even as the CBN was issuing its 1-year NT-bills at yield rates of 4.78% and 2.24%.
• However, in Q1 2024, yield rates on 1-year and 180-day NT-bills hit as high as 21.5% and 19.5%, with only Dangote Sugar offering a relatively comparable yield rate of 17.08% on its CP.

What you should know

The CBN’s decision to issue short-term securities at these rates is tied to its target of reducing inflation as well as driving foreign portfolio investors back to Nigeria.

• Although the CBN’s initiatives have delivered substantial returns, they also incur notable costs for both the apex bank and private firms, as the route to viable short-term financing options have been reduced for these firms.
• With the benchmark interest rate hitting a staggering 24.75%, fears have been raised about the capacity of the private sector to access finance at these costs.
• In a response to the CBN’s announced MPR hike to 24.75%, the National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), Dele Oye, noted,

“Restricted credit availability: With the increase in the CRR, banks’ ability to lend is further curtailed. This exacerbates the challenges faced by the private sector, which is already grappling with limited access to finance.”