Telco giant, MTN Nigeria is seeking to raise a N100 billion through Commercial Paper (CP). The Head, Frontier Research at EFG Hermes, Kato Mukurudisclosed this during an interview with CNBC.
Although it’s yet to be officially disclosed, during the interview, Mukuru said he got reliable information from a staff member of the Nigerian Stock Exchange (NSE), that MTN was about to issue a N100 billion commercial paper.
Possible reason: Mukuru made known that the telco might have resorted to raise the commercial paper because “it tells you that either it is cheaper than getting bank finances or the banks don’t want to finance it.”
The EFG Research Head added that there was something wrong for MTN to have wanted to raise the fund through the CP saying this type of borrowing should ordinarily be secured from the bank.
Understanding what CP entails: A Commercial Paper is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts payable and inventories and meeting short-term liabilities. Maturities on commercial paper rarely range longer than 270 days. Commercial paper is usually issued at a discount from face value and reflects prevailing market interest rates.
Commercial paper is not usually backed by any form of collateral, making it a form of unsecured debt. As a result, only firms with high-quality debt ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt issue. Because commercial paper is issued by large institutions, the denominations of the commercial paper offerings are substantial, usually $100,000 or more. Other corporations, financial institutions, wealthy individuals, and money market funds are usually buyers of commercial paper.
Meanwhile, MTN Nigeria Plc traded N139 in its last trading session on the NSE.
(Nairametrics)
