A $240 million or about N100 billion, Asset-Backed Commercial Paper (ABCP), targeted at stabilising Nigeria’s agriculture sector is being reopened by AFEX, a major player deploying a commodities exchange model for the African market.
The agriculture sector stabilisation plan involves using the money raised to offer agro-processors low-cost financing to bridge the funding gap between lenders and borrowers.
The new funding, the second of AFEX’s three-year commercial paper programme initiated in Q4 2021, where $65 million (N27 billion) was raised, seeks to raise an additional $175 million (N73 billion) for processors unable to borrow in the commercial paper markets.
The ABCP is a short-term debt instrument typically providing investors with a competitive 15 percent return on their investment, with a maturity of up to 270 days.
AFEX explained that the development will help promote the efficiency of commodity trading and enable the broader capital market to tap into the African commodities sector.
How AFEX Asset-Backed CP will operate
According to the country’s first private sector commodities exchange, while banks or other financial institutions typically issue the security itself, the ABCP notes are sponsored by AFEX Commodities Exchange and the proceeds of the issuance will be used by AFEX Investment Limited to provide pre-qualified agro-processors with working capital support to enable them to purchase commodities required for their production processes at an agreed price.
AFEX’s security is backed by the commodities serving as the credit enhancement in the transaction. AFEX lists the ABCP on ComX, its commodities trading platform, then engages capital market operators for subscriptions over a set time.
Funds raised are then used to provide pre-qualified agro-processors with working capital to purchase commodities required for their production processes at an agreed price.
Ayodeji Balogun, chief executive officer of AFEX, said the company has a strong track record in offering distinctively differentiated and innovative financial instruments to the marketplace, noting that the new Asset-Backed Commercial Paper will help bridge the gap between agro-processors and investors.
“Access to low-risk funding and capital is critical to empowering Africa to feed herself. We believe in making capital that is a right fit, in terms of timeliness and structure, available for all players in the value chain,” he added.
Balogun expressed confidence that, based on AFEX’s past performance, the company will attract even more financing from private investors and, subject to value for money, will help the company secure the $175m (N73 billion) investment in Africa’s food security.