By Dipo Olowookere

Following an extended period marked by a dearth of activity, significantly weakened issuer interest and diminished investor confidence, the Nigerian Commercial Paper (CP) market may now have accomplished a full and clear revival as registered CP Programmes on the platform of FMDQ OTC Securities Exchange (FMDQ or the OTC Exchange) have crossed N1 trillion in value.

Stark opacity and extreme market irregularities which characterised the Nigerian CP market prior to the necessary release of the Central Bank of Nigeria (CBN) Guidelines on the Issuance and Treatment of Bankers’ Acceptances and Commercial Paper [2009] (the Guidelines), saw the sharp decline of the then market from trillions worth to zero levels by 2013.

There however, appears to be hope for businesses looking to tap the debt market for short-term capital and investors looking to diversify their portfolios, as the FMDQ-championed CP market reform since 2014, which was predicated on the back of the CBN Guidelines, has contributed, in no small measure, to the revival of the activities in the CP market; providing issuers a renewed opportunity to grow their businesses and meet short-term funding obligations as well as restoring the much-needed confidence required by investors to actively participate in the market.

Having made the decision to embark on key initiatives and strategies for the restoration of the Nigerian CP market back in 2014, FMDQ, in collaboration with the CBN and other relevant market stakeholders, relentlessly sought to realise this objective.

FMDQ released the FMDQ Commercial Paper Quotation Rules & Process in 2014, following the receipt of the CBN’s “No Objection” on same, and focused efforts and the requisite resources to organise and resuscitate the undeniably extremely important market.

In addition to providing what issuers and market participants have described as a reliable and efficient platform for registering, quoting and trading CPs, amongst other debt securities, FMDQ has taken the most crucial steps towards promoting transparency, governance, integrity and efficiency, thereby regaining the lost interest and confidence in the Nigerian CP market, by adopting initiatives specifically targeted at achieving the objective to revive the market.

Transparency, price discovery, liquidity, rollover governance (i.e. matured CPs are approved for rollover only with the consent of investors), efficient quotation processes are some of the transformation elements now evident in the Nigerian CP market today. Issuers and investors alike, are now able to effectively and sustainably contribute to the development of the nation’s debt markets.

Coming at a time when the OTC Exchange has recently affirmed its commitment towards the development of the Nigerian debt capital markets (DCM) and its subsequent deepening and integration to its international counterparts, one can expect that the successes recorded by the Nigerian CP market can be cascaded into other aspects of the Nigerian financial markets within FMDQ’s purview.

Indeed, FMDQ continues to validate its position as the foremost debt capital and OTC derivatives-focused exchange in the nation and the commendable strides made by the OTC Exchange in its product and market development agenda, notable of which include the launch of Short-Term Bonds process to enhance speed to market in bond issuance, the commencement of the Private Companies’ Bonds Noting Service and most recently, and the embarkment on initiatives aimed at the development of the Sukuk and Green Bonds/Sustainable Finance markets to support infrastructure and economic development in Nigeria, have begun to put the Nigerian DCM on the global map.

FMDQ has ably embraced the role of a change agent in the Nigerian financial market and it is expected that the OTC Exchange will not rest on it oars but continue to deploy initiatives to improve the prosperity of all categories of capital raising, investing and trading stakeholders – governments, businesses, and individuals – through its compelling activities in promoting access to capital, democratising investment, enhancing transfer of value and championing transfer of risk in the DCM.

CPs, which are short-term debt financing instruments issued for a period not exceeding two hundred and seventy (270) days, present a cost-effective and stable means of sourcing scarce capital when compared to traditional bank loans 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.

In addition, by accessing the CP market, businesses can build confidence in their brand as well as raise their corporate profiles ahead of tapping the market for longer-term debt such as bonds in preparation for the impact of banks implementation of Basel 3 liquidity management principles.

As an investible asset class, CPs are often sought by investors to diversify their portfolios, thus, enhancing overall portfolio return, with their short-term nature permitting high relative return on investment, and allowing these investors to remain relatively liquid. Companies that have tapped the CP market have achieved significant reduction in their borrowing costs.