AFEX is raising about N30 billion for advance funding to agro-processors in another major move to unlock the potential of Nigeria’s commodities market.
AFEX, through AFIL SPV Plc- a special purpose vehicle of AFEX Investment Limited (AFIL), is offering Series Asset-Backed Commercial Paper (ABCP) to raise up to N30 billion, in an offering that allows conventional and ethical investors to invest in the issue.
The N30 billion ABCP is being issued under AFIL SPV PLc’s N100 billion ABCP programme, sponsored by AFIL, a capital investment member of the AFEX Group. AFEX Commodities Exchange, the trading platform member of AFEX, is also a co-Guarantor.
According to the issuer, the AFIL SPV Plc ABCP is aimed at catalysing finance for agro-processors in the food, beverage, and poultry sectors through the capital market in ways that ensure a fit in both timeliness of funding and structure of the funds.
The net proceeds of the issuance will be used to provide pre-qualified agro processors with working capital support to enable them purchase commodities required for their production processes at an agreed upon price.
The ABCP Notes will be backed by commodities deposited by the pre-qualified agro-processors with the collateral manager.
The issuance allows Islamic ethical investors to invest in the notes through a murabaha window.
AFIL SPV is offering 179-day commercial papers with effective and implied yields of 14.50 per cent and 13.54 per cent. It is simultaneously 270-day CPs with effective yield of 15.00 per cent and implied yield of 13.50 per cent. Minimum subscription is N5 million.
The ABCP notes will be listed on AFEX Commodities Exchange after the completion of the offer.
AFEX recently signed a major agreement that may herald trading in future contracts for major local commodities such as cocoa, maize, paddy rice and soybean among others.
The development of exchange-based trading for commodities futures and other derivatives is expected to boost capital formation for the development of the agricultural sector and to deepen the depth of the Nigerian capital market.
Currently, trading on commodities such as cocoa, maize, paddy rice, and others are limited to the spot and over-the-counter (OTC) markets. The spot and OTC markets expose participants to frequent price movements and counterparty risk.
With the futures market, participants can lock in prices and positions of various commodities ahead of time without facing the risk of default by a counterparty.
In furtherance of the commodity futures market, AFEX Commodities Exchange and NG Clearing Limited last November signed an agreement to develop the infrastructure that facilitates trading and central clearing of futures contracts for agricultural commodities.
AFEX Commodity Exchange will serve as the trading venue while NG Clearing will serve as the central counterparty that guarantees the settlement of trades.
A central counterparty is a critical financial market infrastructure that facilitates the clearing and settlement of derivatives and other securities as well as the management of counterparty credit risk.
Chief Executive Officer, AFEX Commodity Exchange, Mr Ayodeji Balogun said the agreement was part of AFEX’s mission oto be a reference point for commodities in Africa.
According to him, the collaboration with NG Clearing is a new leap for the financial market as it further opens opportunities for generating shared prosperity through the commodity market.
He said AFEX shares a drive with market regulators and other players in the capital market to deepen the market and unlock financing options and alternative investment classes for players in the commodities ecosystem.
“We believe that this would further position the country as a preferred capital destination with a viable path of effectively managing risks in key sectors of the economy,” Balogun said.
Chief Executive Officer, NG Clearing, Mr. Tapas Das, said the partnership with AFEX would usher in a new phase in the development of the financial and agricultural sectors.
“As the central counterparty, we bring confidence and trust to the market as we will be guaranteeing the execution of the trades through our resilient collateral management processes,” Das said.
He said the collaboration would unlock the untapped potential of commodity derivatives in Nigeria.
The agreement between AFEX and NG Clearing comes at a time when unlocking value in Nigeria’s agricultural sector is at the front burner of government initiatives.
The AFEX market turnover stands at N123.72 billion while NG Clearing earlier facilitated the introduction of equity index derivatives last April, serving as a central counterparty to the NGX Exchange.