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By Chinyere Anyanwu
AFEX has opened the second round of its $240 million Asset-Backed Commercial Paper (ABCP) to help stabilise Nigeria’s agricultural sector.
The Nigerian-based commodities market player and first private sector commodities exchange in the country, AFEX, will offer agro-processors low-cost financing to bridge the funding gap between lenders and borrowers.
The funding, which is AFEX’s second in a three-year Commercial Paper programme that started in Q4 2021, where $65 million was raised, is targeted at raising an additional $175 million for processors unable to borrow in the commercial paper markets.
AFEX is improving the efficiency of commodity trading and enabling the broader capital market to tap into the African commodities sector. The ABCP is a short-term debt instrument typically providing investors with a competitive 15 per cent return on their investment, and maturity is up to 270 days.
Agriculture remains one of the most important economic sectors for the continent, employing the majority of the population and accounting for 14 per cent of GDP in sub-Saharan Africa. Yet, many African economies struggle with food security issues due to the gap between supply and demand. 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 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 for a set time. Funds raised are used to provide pre-qualified agro-processors with working capital to purchase commodities required for their production processes at an agreed price.
