Cement manufacturing giant, Dangote Cement PLC, at the weekend issued N50 billion in Commercial Papers (CP) in order to meet short term financial obligations.
The exercise, which is the second of its kind in barely three weeks, represents the eight to the tenth series of the company’s N150 billion CP programme. Recall we reported that subscription for the fifth, sixth, and seventh series closed on 24th May.
The eight series has a tenor of 90 days with an effective yield of 12.5254 per cent discounted at 10.51 per cent with a maturity date of 12 September 2019.
The ninth series, however, has a 180-day tenor with an effective yield of 12.5254 percent and a discount rate of 13.35 percent with a maturity date of 11 December 2019.
The tenth series, which offers CP of 270 days with an effective yield of 12.6862 percent, and a discount of 14 percent, is expected to mature on the 10th of March 2020.
The offer had opened on 7 June, 2019 while the offer’s application list had closed on 13 June, 2019.
The minimum subscription was N5 million and subsequently in multiples of 1000. Although the CPs were allotted on the closure date, they were issued on 14 June, 2019.
Dangote Cement PLC is planning to use the proceeds from this transaction to bridge a short term funding gap in the operations of the company.
A Commercial Paper is a money market debt-financing security issued by large companies to meet short-term debt obligations like payroll. It is often offered in the short term, usually not exceeding 270 days and is backed only by an issuing bank or company promise to pay the face amount on the maturity date specified on the note.
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.
The company is a leading cement manufacturing firm headquartered in Lagos Nigeria with operations in nine other African countries. The business model entails manufacturing, preparation, import, packaging, and distribution of cement and other related products. It is reputed to be the most capitalised company on the Nigerian Stock Exchange.
