First City Monument Bank Limited is all set to raise capital to the tune of N20 billion through the issuance of commercial paper. The bank is the main subsidiary of FCMB Group Plc which is listed on the Nigerian Stock Exchange.
According to a press statement that was made available by FCMB Group, the N20 billion commercial paper is the first ever to be issued by First City Monument Bank. It is also the first part of a larger N100 billion commercial paper programme that has been planned by the bank.
The N20 billion commercial paper issuance has been planned to have a tenor of 269 days, and it is expected to support the bank’s short-term funding, thereby augmenting its funding.
Who is eligible to participate? Commercial papers are usually targeted at institutional investors such as Pension Fund Administrators and non-pension asset managers. Some high net-worth investors are also eligible to apply.
More on CPs: Note that a Commercial Paper is an unsecured, short-term debt instrument that is issued by big corporations. It is said to be unsecured because it is not usually backed by any form of collateral.
As a result, only companies with very high-quality debt ratings can easily find buyers without having to offer a substantial discount (higher cost) for the debt issue.
Companies like First City Monument Bank typically issue commercial paper for the purpose of raising capital and financing short-term liabilities.
As you can see from the tenor of FCMB’s N20 billion issuance, the maturity dates for CPs seldom lasts longer 270 days.
According to Investopedia, one of the major advantages of commercial paper is that there is usually no need to register it with the Securities and Exchange Commission (SEC). However, this is on the proviso that the issuer plans the tenor to last for exactly nine months or 270 days. Not registering it with SEC, therefore, makes it a very cost-effective way to raise money.