FBNQuest Recommends Commercial Papers and Bonds as Stable Funding Sources for SMEs and Corporates

FBNQuest Merchant Bank, the investment banking and asset management group of FBN Holdings Plc, is recommending commercial papers and bonds to corporate issuers seeking to raise working capital, expansion capital, refinance expensive debt and better match their cash obligations with revenues.

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Speaking at the latest edition of the”Leading Conversations with FBNQuest” webinar series, Oluseun Olatidoye, Head Capital Markets, FBNQuest, noted that many companies do not take advantage of Nigeria’s growing commercial paper and bond market to access stable funds that match their capital needs.

Even though interest rates have trended higher in the first quarter of this year, there is still significant scope for many companies to access cheaper and more stable funding from investors who are seeking well-run businesses with predictable cashflows to invest in” said Olatidoye.

The webinar with the theme ‘Funding through Commercial Papers and Bonds’ was hosted to engage corporates and investors on the opportunities within issuing and investing in commercial papers and bonds.

Other speakers included Sumit Jain, Senior Executive Director at Valency International, a leading food ingredient supply chain company. He echoed the sentiment about the benefits of issuing commercial papers.

We believe that corporates can lower the interest paid on bank debts by up to 4 percentage points by issuing commercial papers. Loans also offer other tremendous benefits in the current macroeconomic environment” said Sumit Jain.

Nigeria’s capital market has recorded a flurry of corporate commercial papers and bond issues since a sharp decline in interest rates in the third quarter of 2020. “We think the market conditions have just cast the spotlight on a financing option that discerning companies should consider.

We look forward to working with our clients to navigate the process to issuing CPs and bonds and therefore unlocking the efficiency and convenience that these instruments offer” stated Olatidoye. 

As a leading investment banking institution, FBNQuest has advised on the issuance of several commercial papers transactions for organisations such as Valency Agro Nigeria LimitedMixta Real Estate plc, Dangote Cement plc, Nigerian Breweries plc (NB), Lafarge Africa plc, Flour Mills of Nigeria plc (FMN), Wema Bank plc, and UACN Property Development Company plc (UPDC) to mention a few. 

These transactions add to the organisations impressive portfolio of organisations it has supported, and once again highlights its capabilities in the successful execution of sizeable capital market and commercial debt transactions.


Gas deals

Corporate oil, gas deals in Nigeria fall to lowest in 5yrs

The scale of corporate deals between privately held businesses and their investors in Nigeria’s oil and gas sector is at the lowest ebb in five years, as transactions hit a low of $123 billion in 2020, a sharp decline compared to a record high of $301 billion recorded in 2018.

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This is troubling because oil and gas sector deals such as mergers, acquisitions, asset sales, debt financing, among others, drive investments, improve infrastructure, technical expertise, and grow the economy, thus improving living standards.

According to data from IHS Markit, a London–based energy information resource, Nigeria recorded 82 oil and gas deals last year worth $123 billion, a 69 percent decrease compared to 138 deals valued at $208 billion in 2019.

The data also show that 2018 was Nigeria’s best performing year in the last six years with a total deal volume of 183 deals valued at $301 billion. This is lower when compared to $182 billion, $201 billion, and $196 billion recorded in 2017, 2016, and 2015, respectively.

A further breakdown of 2020 data reveals that the upstream sector accounted for about 45 percent of all deals recorded followed by the midstream sector with 26 percent, while the downstream sector and oil field service accounted for 24 percent and 5 percent, respectively.

Although investors in Nigeria’s energy sector are not immune to the economic effect of coronavirus and the impact of lower oil prices, which made acquisition financing much harder last year compared to previous years, however, experts say their fortunes are made worse by a regressive fiscal regime and increasing risk profile.

“Price volatility, tough fiscal regime, rough business environment, and lack of capacity are some of the biggest challenges facing Nigeria’s oil and gas deals in 2020,” Joe Nwakwue, chairman, Society of Petroleum Engineers (SPE) said.

In 2019 deals, IHS Markit showed the upstream sector was also responsible for the lion share of about 52 percent of total deals followed closely by the midstream sector accounting for about 40 percent, while oil field service and downstream sector account for the remaining share of 4 percent each.

“Nigeria needs to put the right fiscal regime that will make projects more valuable in the midstream and downstream sector which would attract the right kind investment,” Nwakwue said.

Elias & Co, a business law firm with specialty in mergers and acquisitions, said transactions in the energy sector had been less busy lately compared to six years ago.

“It is far from being inactive,” analysts at Elias & Co said in a note.

Mergers and acquisitions in Nigeria’s oil and gas sector have slowed in recent years after an initial surge two years ago when some indigenous players, buoyed by the Federal Government’s initiatives, took advantage of some divestment opportunities by international oil companies operating in the country.



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