Market News

Nigerian corporates are turning to commercial papers (CPs) as a flexible tool for short-term funding amid a record-high interest rate environment that’s tightened credit conditions and limited business expansion plans.

Findings by BusinessDay showed that 25 companies raised a total of N330.3 billion through CP in the first quarter of 2025 to fund their immediate financial needs, highlighting the renewed investor appetite for the financial instrument.

Data from the FMDQ Group for the period under review revealed that Access Bank raised N82.82 billion. Dangote Sugar Refinery Plc (N84.01 billion), Stanbic IBTC Capital Limited (N25.15 billion), and Daraju Industries Limited (N2.07 billion).

Other companies, including Valency Agro Nigeria, C&I Leasing, Hillcrest Agro-Allied Industries, Mycredit Investment, Capital Saga Technology, Russelsmith Nigeria, UACN, Mecure Industries, Skymark Partners, Robust International Commodities, A.R.N. Foods, Johnvents Industries, Precise Lighting, VFD Group, Lekki Gardens Estate, Sultiva Wakalah SPV, Zeenab Foods, and Smart Residences, raised amounts ranging from N0.85 billion to N22.70 billion.

“In 2025, more Nigerian companies are tapping Commercial Papers (CPs) for working capital,” said Stephen Fidelis, a Lagos-based financial analyst. “It’s a sign of how companies are adapting to the new interest rate realities in Nigeria.”

CPs are short-term debt instruments with maturities ranging from a minimum of 15 days to a maximum of 270 days. They are primarily used to finance working capital, manage cash flow, or cover unexpected expenses.

Typically, large corporations with strong credit ratings and histories issue them. CPs are quoted, traded, and reported on relevant platforms of the FMDQ Exchange.

The total value of CPs quoted on FMDQ Exchange in May 2025 increased MoM by 510.93 percent to N370.10 billion from N60.58 billion in April 2025. So far this year, March saw the highest value at N417.7 billion.

Samuel Oyekanmi, research and insights associate at Abuja-based consultancy firm Norrenberger, explained that businesses are strained due to liquidity squeeze and high cost of capital, stressing that typically, businesses avoid debt instruments, except for those who do not have a choice.

“They (corporates) choose CP because the cost is short-term rather than bonds, will means paying a high cost for a longer period,” Oyekanmi said.

According to FMDQ data, 19 CPs were quoted, with the majority issued by institutions in the financial services and agricultural sectors, suggesting an increased appetite of corporates in this sector for short-term debt instruments.

“Corporates resorting to Commercial Papers (CPs) because they have been crowded out of the bond market by the government’s aggressive borrowings,” said Samson Simon, chief economist at ARKK Economics and Data Limited.

“It is cheaper for the companies to borrow using CPs than to use TBills or borrow from banks, as the interest they pay is lower, meaning it is less expensive to borrow using CPs than the other instruments.”

Nigeria’s corporate funding market has become increasingly challenging due to rising interest rates, which have restricted access to the local financial market for working capital needs.

The Federal Government of Nigeria’s (FGN) active involvement in the local debt market through treasury bill issuances has exacerbated the situation for corporate borrowers as local borrowing costs continue to soar.

The Central Bank of Nigeria raised benchmark interest rates five times last year, increasing the Monetary Policy Rate (MPR) by 850 basis points to 27.25 percent, the highest on record, triggering a corresponding rise in bank lending rates and returns on fixed-income investments.

It’s held the MPR steady twice this year, with a possibility of a token rate cut in July as inflationary pressures wane.

A review of bank lending rates in Nigeria reveals that some banks charge rates as high as 48 percent, with Zenith Bank’s lending rates ranging between 27.78 percent and 38.50 percent. Keystone Bank’s lending rate ranges from 30.5 percent and 36 percent, while First Bank’s lending rate ranges between 26 and 36 percent.