Nigerian businesses shun IPOs, raise N3.09tr via commercial papers

to capital market operators, as stakeholders fear that the trend could worsen the drought of new issues that have bedeviled the equities market since the 2007/2008 global financial crisis.Due to the relatively inactive state of the primary market debt issues, CPs have become the new trend in the primary market space. As of April 2021, there are 46 registered CP programmes on the platform of FMDQ OTC Securities Exchange worth N3.09 trillion in value.

He pointed out that raising funds for project expansion and working capital through CP has become a faster and cheaper way for companies to get funding for their business when compared to the cost of raising such funds through the equities market.Aside from its cost-efficiency, Chiazor said debt financing does not require the company to give up control of the company to investors as prerequisites for issuance.

Some of the corporates that have turned to CP to raise funds include MTN Nigeria Communications Plc, which recently notified the Nigerian Stock Exchange of its successful issuance of the N100 billion series I & II notes CP programme. According to analysts, the overall weak macroeconomic scenario sustained negative market sentiments in the past few years, coupled with the tense socio-political space, which has not encouraged successful primary market activities.

Adonri pointed out that when the economy is good, investors take more risks and their tendency to flock to equities is high. However, he noted that during economic gloom, investors run to the safety of debt for cover. The exchange also developed a co-branded index series with MSCI, a globally recognised index service provider.This index could potentially generate higher-order flow into the market, as it showcases the index constituents on a respected, global platform with trusted index methodology. Issuers could leverage this initiative to attract sustainable funding for their growth objectives.

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