Economy
How to Make More Money Investing in Commercial Papers
By FSDH Research
As most savvy investors will tell you, it is important to put your money to work in order to grow your wealth.
In this report, we will show you how you can achieve this goal through investing in Commercial Papers (CPs).
If you have ever bought an item from a discount shop, then you have a basic understanding of how you can invest in a commercial paper to grow your wealth.
Investing in a CP may be likened to buying items from a discount shop or buying items that are on sale in a supermarket. Usually, a discount shop gives you an opportunity to pay a price that is lower than the price tag on the item.
For instance, if the price tag on a perfume is N20 but the shop places a 10% discount (i.e. N2) on the perfume, it means that you will pay N18 (i.e. N20 less N2) for it.
The only difference between this simple calculation and a case of CP investment is that you must take into account the number of days the investment will run, so as to determine the actual discount you will receive on the investment.
So, when you invest in a CP, you pay an amount that is lower than the amount you will receive on the day the investment is ripe for harvest (matures).
CPs are notes of promise that large companies use to borrow money from people or companies. The company issuing the CP usually borrows the money for a short period of time, always less than one year. CPs are issued in tenors ranging between a minimum of 15 days and a maximum of 270 days.
Companies typically use the money they borrow to finance their operations in order to generate more income.
The Securities and Exchange Commission (SEC) regulates the CP market in Nigeria. The primary duty of SEC in Nigeria is to formulate rules and guidelines that protect investors’ interests and ensure orderly development of the investment market.
Usually, the investment window in CPs opens for a short period of time – in most cases, one week. The issuing company determines the minimum amount that investors can invest, which is typically N5 million but may be lower in some cases.
Investment in CPs is similar to investment in Nigerian Treasury Bills (NTBs) in that both instruments are discounted instruments.
However, the main difference is that while NTBs are used by the Federal Government of Nigeria (FGN) to borrow money, CPs are used for the same purpose by companies.
FSDH Research notes, however, that despite being relatively low-risk because of their short maturity period, the risks inherent in investing in CPs are still higher than the risks inherent in investing in NTBs.
FSDH Research believes that a number of companies may issue CPs this year to raise funds to finance their operations, as against using Bonds to raise long-term funds.
This is based on our view that interest rates will increase because of an expected increase in the inflation rate.
This will create more investment opportunities for investors in the CP market, especially given that the yields on CPs are usually higher than those on NTBs.
In addition to higher yields, another advantage of CPs is that the income investors earn from them is not subject to taxes.
This is an incentive from the FGN to encourage the development of the CP market in Nigeria. Investment banks or investment management companies regularly introduce available CPs in the market to their clients whenever the offer is open for subscription. The FMDQ OTC Securities Exchange provides a platform for trading in CPs in Nigeria.
As such, CP investments are relatively liquid as they can be traded in the secondary market if investors wish to sell before maturity.
Now that you have a full understanding of the potential of CPs for wealth creation, we know you would not want to miss any opportunity to invest in CPs.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange closed higher by 1.41 per cent on Friday, May 15, supported by four securities on the platform.
During the session, FrieslandCampina Wamco Plc added N14.24 to its share price to sell for N159.00 per unit, in contrast to the previous day’s N144.76 per unit.
Further, Central Securities and Clearing System (CSCS) Plc appreciated by N1.34 to N72.34 per share from N71.00 per share, Geo-Fluids Plc improved its price by 4 Kobo to N2.94 per unit from N2.90 per unit, and Industrial and General Insurance (IGI) Plc gained 1 Kobo to trade at 61 Kobo per share compared with Thursday’s closing price of 60 Kobo per share.
As a result, the NASD Unlisted Security Index (NSI) rose by 58.20 points to 4,188.41 points from 4,130.21 points, and the market capitalisation soared by N34.82 billion to N2.506 trillion from N2.471 trillion on Thursday.
During the session, the volume of trades went up by 180.8 per cent to 1.2 million units from 417,349 units, and the value of transactions increased by 29.8 per cent to N29.8 million from N23.2 million, while the number of deals fell by 22.6 per cent to 24 deals from 31 deals.
Great Nigeria Insurance (GNI) Plc ended the day as the most traded stock by value on a year-to-date basis with 3.4 billion units sold for N8.4 billion, followed by CSCS Plc with 60.8 million units exchanged for N4.1 billion, and Okitipupa Plc with 27.9 million units valued at N1.9 billion.
GNI Plc also closed the session as the most traded stock by volume on a year-to-date basis with 3.4 billion units worth N8.4 billion, followed by Resourcery Plc with 1.1 billion units transacted for N415.7 million, and Infrastructure Guarantee Credit Plc with 400 million units traded for N1.2 billion.
By Dipo Olowookere
The bears overpowered the Nigerian Exchange (NGX) Limited on Friday, sinking it further by 0.76 per cent when the closing gong was struck by 4 pm.
The nation’s flagship equity market was under selling pressure during the session, as investors booked profits after the shares witnessed price appreciation in the past trading sessions.
The energy sector was the most impacted, as it shed 4.43 per cent. The consumer goods index declined by 0.90 per cent, the banking counter decreased by 0.15 per cent, and the industrial goods sector lost 0.08 per cent, while the insurance counter gained 2.42 per cent, which was not enough to salvage the situation.
Consequently, the All-Share Index (ASI) contracted by 1,912.19 points to 250,330.92 points from 252,243.11 points, and the market capitalisation moderated by 1.225 trillion to N160.444 trillion from N161.669 trillion.
Zichis was the worst-performing stock for the session after it gave up 9.97 per cent to close at N29.43, FTN Cocoa slipped by 9.95 per cent to N8.96, The Initiates slumped by 9.90 per cent to N32.30, LivingTrust Mortgage Bank tumbled by 9.88 per cent to N3.83, and International Energy Insurance dropped 9.71 per cent to trade at N2.79.
The best-performing stock was ABC Transport, which grew by 10.00 per cent to N6.27. May and Baker also appreciated by 10.00 per cent to N47.30, SCOA Nigeria surged by 9.98 per cent to N33.05, Trans-Nationwide Express expanded by 9.97 per cent to N7.06, and DAAR Communications jumped 9.76 per cent to N2.25.
Yesterday, investors traded 1.1 billion shares worth N44.3 billion in 65,744 deals compared with the 1.0 billion shares valued at N41.6 billion transacted in 74,822 deals a day earlier. This indicated a dip in the number of deals by 12.13 per cent, and a rise in the trading volume and value by 10.00 per cent and 6.49 per cent, respectively.
Chams was the busiest equity for the day, with 328.5 million units sold for N1.1 billion. UBA traded 61.6 million units worth N2.7 billion, First Holdco transacted 58.7 million units valued at N4.2 billion, Secure Electronic Technology exchanged 51.9 million units worth N45.0 million, and Access Holdings traded 51.8 million units valued at N1.3 billion.
By Adedapo Adesanya
The last trading session of the week at the Nigerian Autonomous Foreign Exchange Market (NAFEX) ended on a negative note for the Naira on Friday, May 15, as it lost N15 Kobo or 0.1 per cent against the Dollar to trade at N1,371.04/$1 compared with the previous day’s N1,370.89/$1.
However, it further appreciated against the Pound Sterling in the same market segment yesterday by N20.77 to close at N1,830.61/£1 versus Thursday’s value of N1,851.38/£1, and gained N7.91 against the Euro to settle at N1,595.07/€1 versus N1,602.98/€1.
At the GTBank FX desk, the Naira lost N2 against the US Dollar during the session to sell at N1,383/$1 compared with the preceding session’s N1,381/$1, and at the black market, it remained unchanged at N1,385/$1.
The Naira is forecast to be broadly stable, supported by Dollar sales by the Central Bank of Nigeria (CBN) amid steady, higher oil receipts, with the market settling into a balance.
Policy direction is also expected to give the market some boost as the CBN said the new edition of the FX market guidelines will deepen liquidity, improve transparency and strengthen confidence in the country’s foreign exchange market.
According to the Governor of the CBN, Mr Yemi Cardoso, the update is due to changing global economic realities, domestic reforms and the need for a more coherent and forward-looking regulatory framework. According to him, the last edition of the FX manual was issued in 2018, making the latest review both timely and necessary.
Meanwhile, the cryptocurrency market plunged into the red zone as rising bond yields hit risk assets across markets, while traders are increasingly betting the Federal Reserve may need to raise rates again. Rising energy prices and resurging inflation could force central banks back into tightening mode.
Cardano (ADA) shrank by 4.4 per cent to $0.2557, Dogecoin (DOGE) slid by 3.7 per cent to $0.1104, Ripple (XRP) depreciated by 3.5 per cent to $1.41, Solana (SOL) crashed by 3.5 per cent to $87.81, and Binance Coin (BNB) slumped by 3.4 per cent to $659.64.
Further, Bitcoin (BTC) declined by 2.6 per cent to $78,547.49, Ethereum (ETH) lost 2.1 per cent to quote at $2,209.19, and TRON (TRX) tumbled by 0.7 per cent to $0.3509, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
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