In today’s fast-paced financial world, companies often need quick short-term funding to keep operations running smoothly. While traditional bank loans are a well-known solution, they can be slow and cumbersome. Commercial Paper (“CP”) has become a central feature of short-term corporate financing in Nigeria, particularly for companies seeking to address working-capital requirements without incurring the administrative burdens and longer tenors associated with conventional loan facilities. In the modern Nigerian capital-markets landscape, the issuance of CP is no longer an informal treasury activity but a regulated securities exercise governed by the Securities and Exchange Commission (“SEC”), supervised in specific cases by the Central Bank of Nigeria (“CBN”), and operationalized through quotation on the FMDQ Securities Exchange Limited (“FMDQ”). Many companies now turning to capital markets to support daily expenses and short-term goals. Commercial paper offers quick access to funds, flexible terms, and competitive pricing, particularly for firms with strong credit profiles.

 

Understanding Commercial Paper

 

Commercial paper has a long history in Nigeria, first introduced in 1962 to finance export-marketing operations. It is a short-term, unsecured promise by a company to repay borrowed money, typically used for everyday business needs such as payroll, inventory purchases, and cash flow management. Issued at a discount and repaid in full at maturity, commercial paper usually matures within 30 to 270 days globally, though Nigerian regulations allow tenors of up to 364 days.

Today, commercial paper is issued by eligible corporations that meet stringent documentation, disclosure, and credit rating requirements either as a one-off issuance or under a CP program that allows repeat issuance over a three-year period. The market involves key parties such as issuing houses, solicitors, auditors, and CBN-licensed banks acting as collecting and paying agents. Qualified institutional and eligible investors may invest in CPs, which can also be traded in the secondary market once quoted on the FMDQ Exchange.

 

The Issuance Process in Practice

A typical commercial paper issuance in Nigeria follows a structured timeline of approximately 2-3 months, broken into four key phases:

 

1. Phase 1, Drafting & Approval of Transaction Documents: This foundational phase involves the appointment of arrangers, preliminary transaction structuring, a formal kick-off meeting, and comprehensive information gathering. Concurrently, core transaction documents are prepared, the credit rating process is initiated, and solicitors conduct their review.
2. Phase 2, Issuer Registration and Pre-marketing: The issuer formally submits a letter of expression of interest and application documents to the regulator. Initial engagement with potential investors begins, and formal discussions with the Securities and Exchange Commission (SEC) are conducted.
3. Phase 3, Issuance Period and Marketing: This active marketing phase includes investor meetings and presentations, circulation of marketing materials, the opening and closing of the offer, and the final allotment of the commercial paper to successful investors.
4. Phase 4, Quotation & Reporting: Post-issuance, the commercial paper is quoted on the FMDQ platform for secondary market trading. An allotment report is submitted to the SEC, the Issuing/Paying/Collecting Agent (IPCA/CPA) receives investor funds, and the depository transfers the CP certificates to investors or their custodians.

 

Key Parties Involved in a CP Issuance

A successful commercial paper issuance requires the collaboration of several professional parties, each with a distinct role:

• Arranger(s)/Dealer(s)/Issuing House: This party acts as the project manager, overseeing the entire transaction. They advise on structure, timing, and pricing, liaise with regulators to secure approvals, coordinate the investor engagement process (including roadshows), and manage the book-building and quotation on the FMDQ Exchange. Their deliverables include the Programme Memorandum, Pricing Supplement, and Investor Presentation.
• Transaction Solicitor: Responsible for the legal integrity of the issuance. They conduct legal due diligence, prepare legal opinions, and draft or review all transaction documents. This includes perfecting the Trust Deed (if applicable), drafting the commercial paper terms and conditions, and preparing agreements such as the Dealer Agreement/Deed of Covenant and the Collection Paying Agent Agreement.
• Credit Rating Agencies: Mandated by regulation, one or more SEC-approved agencies review the issuer’s audited financial statements and overall creditworthiness to assign an investment-grade credit rating to the issuer or the specific issue. This rating is a critical factor for investor confidence.
• Auditors: Provide an additional layer of assurance by preparing a comfort letter, which is filed with the regulator to affirm the reliability of the company’s audited financial statements.
• Collecting/Paying Agent (CPA): Typically a licensed bank, the CPA manages the flow of funds, receiving subscription monies from investors and facilitating the repayment of principal at maturity.
• Central Securities Clearing System (CSCS): Acts as the depository, handling the electronic issuance, custody, and settlement of the commercial paper instruments.

 

Understanding the Cost Structure

Issuing commercial paper involves various statutory, regulatory, and professional fees. A clear understanding of this cost structure is essential for financial planning.

• Statutory/Regulatory Fees: Payable to the Securities and Exchange Commission (SEC) and the Central Securities Clearing System (CSCS).
• Registration and vetting fee: (e.g., ₦600,000 for the programme) . 
• Issuance Fee: calculated on a sliding scale based on the issue size:

         First ₦500 million: 0.15%

         Next ₦500 million: 0.145%

         Balance above ₦1 billion: 0.1425%

• CSCS Fees: Include a fixed ISIN issuance fee (e.g., ₦250,000).
• Value Added Tax (VAT): A 7.5% VAT is applicable on the SEC program fee and the CSCS fee.
• Professional Fees: Negotiated with service providers.
• Issuing House/Arranger Fees: Typically a percentage of the issue amount (e.g., in the range of 1.5% – 2.0%), plus VAT.
• Financial Advisory Fee: May be a fixed sum (e.g., ₦10,000,000) for advisory services separate from the issuance execution.
• Solicitor’s Fees: Usually a negotiated fixed fee (To Be Determined – TBD), plus VAT.
• Receiving Agent’s Commission: A smaller percentage fee (e.g., 0.50%) for handling application processing, plus VAT.

 

Nigeria’s Regulatory Framework

Commercial paper in Nigeria is governed by a clear regulatory triad:

Central Bank of Nigeria (CBN): Regulates banks and financial institutions, many of which are both issuers and investors in CP. The CBN Guidelines (2019) mandate prior written approval for regulated entities before issuance.

Securities and Exchange Commission (SEC): The apex regulator for securities. The SEC Rules on Issuance of Commercial Paper establish eligibility criteria, issuance processes, and define CP as an unsecured promissory note with a maturity of 30–364 days.

FMDQ Securities Exchange Limited: The frontline regulator and market infrastructure provider where CPs are listed, quoted, and traded. FMDQ provides market rules, standard documentation, and a platform for secondary market liquidity.

Other relevant regulations include:

• Companies and Allied Matters Act (CAMA). which governs corporate borrowing authority.
• Investments and Securities Act 2025 which provides overarching market regulation.

 

Eligibility Criteria for Issuers

The regulatory framework establishes stringent eligibility requirements for commercial paper issuers:

Corporate Status: Must be duly incorporated under Nigerian law and have been in operation for a minimum of five years.

Financial History: Must have at least three years of audited financial statements demonstrating financial stability.

Credit Rating: Must obtain an investment-grade credit rating from at least one SEC-registered rating agency. Most recent issuance show ratings ranging from BBB- to A+.

1. Clean Debt Record: Must not be in default of any existing debt obligations.
2. Capital Buffer (For Retail Offers): For issuance targeting retail investors, shareholders’ funds unimpaired by losses must be at least ₦500 million.
3. Alternative Eligibility: Issuers not meeting these criteria may still issue CP if backed by a guarantor that fulfills all eligibility requirements.

 

Strategic Advantages of Commercial Paper

Commercial paper offers several compelling benefits that make it attractive for Nigerian corporations:

• Speed and Efficiency: Issuance can be completed in 2–3 months, significantly faster than traditional bank loan processes, which can take 4–6 months or longer.
• Cost-Effectiveness: Companies with strong credit ratings can access funds at lower costs than traditional loans. Recent issuance show yields ranging from 17.5% to 30%, competitive with alternative short-term funding.
• No Ownership Dilution: Unlike equity financing, CP does not affect ownership or control of the company.
• Flexibility: Tenors can be tailored from 30 to 364 days, with programme sizes allowing for multiple drawdowns.
• Market Credibility: Successful issuance enhance a company’s reputation and investor relations, building track record for future capital market activities.
• Working Capital Optimization: Ideal for bridging cash flow gaps, funding seasonal inventory, and meeting short-term operational expenses.

 

Risk Considerations

While commercial paper offers significant advantages, issuers and investors must consider several risks:

• Refinancing Risk: With short maturities (up to 364 days), companies face rollover risk if market conditions tighten when paper matures.
• Credit Risk: As unsecured instruments, investors rely solely on the issuer’s financial strength and creditworthiness.
• Market Liquidity Risk: Secondary market liquidity can vary, potentially affecting pricing and exit options.
• Interest Rate Risk: For issuers, rising rates increase refinancing costs; for investors, fixed-rate CP loses value when rates rise.
• Regulatory Risk: Changes in SEC, CBN, or FMDQ regulations could affect issuance eligibility or costs.
• Operational Risk: Failure in settlement, documentation, or payment processes can disrupt issuance.

Nigerian regulations mitigate these risks through mandatory credit ratings, transparency requirements, and ongoing regulatory oversight.

 

Market Trends and Recent Issuance

The Nigerian CP market remains active, with several notable issuance in 2024–2025 reflecting strong investor appetite and sectoral diversity:

Issuer	Size (₦bn)	Tenor	Pricing (Yield)	Credit Rating	Date Of Issuance
Dangote Cement Plc	100	181/265 days	17.5%–19%	A+ (GCR)	November 2025
Saro Lifecare Ltd	14.48	269 days	30%	A- (Agusto) BBB+(Datapro	January 2025
UAC of Nigeria Plc	16.75	270 days	25%	A- (Agusto/Datapro)	February 2025
Addosser Microfinance Bank	3.9	270 days	28.5%	BBB- (Agusto); BBB+ (Datapro)	May 2025

 

These transactions demonstrate how commercial paper is used across manufacturing, healthcare, banking, and consumer goods sectors to meet working capital needs efficiently.

Emerging Developments

The Nigerian CP market is evolving with:

• Digital platforms and fin-tech streamlining issuance processes.
• Sustainability-linked CPs gaining interest among impact investors.
• Increased cross-border advisory through international financial services groups, enhancing access to global investor networks.

 

Conclusion

Commercial paper has cemented its role as a vital short-term financing tool in Nigeria, offering speed, flexibility, and cost efficiency. With a robust regulatory framework, a clear process involving specialized parties, a predictable cost structure, and a growing investor base, CP will continue to support liquidity management and operational agility. Trust, transparency, and strong credit fundamentals remain the bedrock of a stable and growing CP market, positioning it as a key component of Nigeria’s evolving capital markets landscape.