By Micheal Eboh

Stakeholders in the financial sector has called for increased participation and cooperation of operators in the sector to ensure the revival and growth of the country’s Commercial Paper (CP) market.

Speaking during a forum organised by Citibank Nigeria Limited, in Lagos, to sensitise operators in the sector and review the Central Bank of Nigeria’s (CBN) guidelines governing issuers and investors in Commercial Paper (CP), Mr. Emeka Emuwa, Managing Director, Citibank Nigeria, called on participants in the market to work together to revive the market.

He said, “This is a potentially lucrative space for both investors and issuers and we are ready to assist and bridge the gap where there may be concerns or inadequacies on either side.”

Also speaking at the forum which attracted participants from various large corporate organisations, Mr. Akin Dawodu, Treasurer, Citibank Nigeria Limited, said, “The Commercial Paper space has been relatively quiet since the guidelines took effect earlier this year and we felt it was important to collaborate with stakeholders to ensure full understanding of the guidelines and to stimulate increased market activity.”

The reasons for the CBN intervention in the sector, according to him, include abuse of loopholes in earlier guidelines by banks to misrepresent their true balance sheet positions, lack of standard documentation and standard accounting treatment by the banks.

Other factors, he said, include the fact that credit enhancements via bank guarantees was used to conceal non-performing assets and collusion by banks to manage financials across month/quarter/year ends.

He also blamed inadequate supervision and limited apprehension of the market’s use of the product on the part of regulators for the intervention of the CBN.

On the benefits of the new guidelines for issuers, Dawodu said, “Provides for useful funding compared to short term Overdraft (OD) and long term bond issues, rating requirement provides access to broader markets as well as increased liquidity for Time-to-market relatively short for issuers.

“CP issuance can also serve as a preamble to any future bond offering by the issuer, balance sheet efficiency creates greater potential funding capacity for the issuer. Liquid instrument with strong secondary market trading possibilities making it an attractive product for potential investors.

“Rating requirement makes CP eligible investment for Pension Funds. Provides greater risk diversification for investors. That is, investors can take up corporate risk and it provides an opportunity for potential investors to bridge duration gaps.”

He stated that the new guidelines require that investors in CPs be made aware of the identity of the issuer, while it directed that CPs shall only be guaranteed by the issuing bank acting as an Issuing and Payment Agent(IPA).

The guidelines, he said, further require that all CPs issued in Nigeria shall be registered with Central Securities Clearing System(CSCS) serving as custodian for all issues, while the issuer of the CP must have three years audited financial statements.

“The issuer of the CP or the specific issue shall be rated by a rating agency registered in Nigeria or any international rating agency acceptable to the CBN. The issuer or issue shall have a minimum of investment grade credit rating (BBB-or similar rating). CPs shall be issued for maturities of between 15 days to 270 days maximum tenor, including rollover, from the date of issue,” he said.