By Babajide Komolafe

Comercio Partners Limited, an investment banking firm has advised investors on the need to understand and mitigate the risks of investing in Commercial Papers, CPs.

The company’s advice is coming on the heels of the huge growth in the volume and value of CPs programmes registered on the FMDQ platform. 

According to FMDQ, the volume and value of  registered CPs programmes rose 41 per cent and 18 per cent, year-on-year, YoY, to 58 and N3.57 trillion  as at March 2nd, 2022 from 41 and N3.02trn at the end of 2020.

Speaking in an interview with Vanguard, Nnamdi, Nwizu, Co-Founding Partner, Comercio Partners, attributed this trend to the  low interest rate environment  and the dearth in secondary market treasury (Open Market Operations, OMO bills)  issuance to about N120 billion monthly from  N1 trillion.

“Both factors have led to a switch by investors to Commercial Papers. The high demand for them has naturally led to an increase in the number of issuers entering the market, as they now see it as a simpler and less expensive way to raise funds,” he said.

On the risks of investing in CPs, Nnamdi advised that investors must understand that they are investing in unsecured papers and hence ensure they do due diligence on any companies issuing CPs.

He said: “Concerning risk, investors must understand that they are investing in unsecured papers. This means that there is no collateral for most Commercial Papers and if they go bad, then they must start court proceedings against the company, to find a way to seize assets and get funds back. Best mitigation is due diligence.