Ayodeji Ebo, Managing Director of Optimus by Afrinvest, has attributed the recent surge in commercial paper (CP) issuances to the high cost of borrowing from banks.
Speaking on Talkonomics, a Nairametrics finance show, Ebo explained that rising interest rates have forced many companies to explore alternative funding sources like the capital markets.
When asked why more companies are turning to CPs to meet working capital needs and fund projects, Ebo said:
“Going to the bank to borrow money with rates around 30% is not sustainable. That’s why companies are turning to the capital markets instead.”
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He pointed to the Central Bank’s increase in the Cash Reserve Ratio (CRR) to 50%, which requires commercial banks to keep half of all customer deposits with the CBN.
According to him, this policy is reducing the amount of money banks have available to lend, creating pressure to charge higher interest rates to cover their margins.
“If a bank receives N1 billion in deposits aiming to make 20% from it, it must keep N500 million with the CBN. That leaves just N500 million to work with,” he explained. “To stay profitable, the bank needs to earn closer to 40% overall—so lending rates go up.”
Ebo also noted that a rush to issue CPs in the first half of 2025 may have been accelerated by a new policy requiring companies to seek SEC review and approval before issuing such instruments.
He said firms may have fast-tracked their plans ahead of the July enforcement, as the new process could be more rigorous and time-consuming.
SEC eligibility
In a circular issued in December 2024, the Securities and Exchange Commission (SEC) set new rules for companies and SPV promoters that want to raise short-term funds by issuing Commercial Paper (CP).
For CP targeted at retail investors, stricter rules apply.
- The issuing company must have at least N500 million in shareholders’ funds, not affected by losses, as confirmed by auditors.
- This amount must be maintained while the CP is still active to ensure only financially stable companies offer CPs to the public.
The SEC also wants to ensure that only creditworthy companies can issue CP.
- To do so, a company must have an investment-grade credit rating from a recognized rating agency.
- If a guarantor is involved, there must be a formal agreement in place.
- Any company that has failed to repay previous debts or interest cannot issue CP.
Still, companies that do not meet all the conditions may be allowed to issue CP if they have a strong guarantor.
- That guarantor or credit support provider must meet the SEC’s standards.
Commercial Paper surge
According to an analysis by Nairametrics, there has been a rush for Commercial Papers (CPs) in 2025 as companies turn to the capital market for short-term funding.
The amount being offered varies widely, from as little as N3 billion to as much as N193 billion.
- Access Bank stands out with the biggest issuance so far—raising N193.25 billion in two tranches, offering investors returns between 21.5% and 24.75%.
- Others include MeCure Industries with N10 billion at 26% interest, Daraju Industries with N4 billion at up to 25%, and Finceptive, a new player, which raised N3 billion with a 268-day tenor. FCMB also made a strong entry with a N70 billion dual-series offer.
Several other companies joined the wave, including FSDH Merchant Bank, C & I Leasing, Stanbic IBTC, Dangote Sugar, Dangote Cement, and Addosser Microfinance Bank.
Respectfully, this is not the time for Dr Deji to be granting interviews while his home is on fire. Since the below average Optimus App Update, customers have experienced all sorts of issues yet there has been no statement from the company to reassure customers of a timely resolution of the issue. Yet he is granting interview while failing to do the needful urgent. Another perfect example of leadership failure