CP market ignites new frontier for investment


By Joshua Worlasi AMLANU

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The Ghana Stock Exchange (GSE) has launched its highly anticipated commercial paper (CP) market, in a move expected to push the financial markets into new frontiers.

For many years, domestic investors have been limited by few options, hindering the ability to diversify their investment portfolios and mitigate risk effectively. However, the commercial paper market presents a new way for investors to deploy funds into short-term debt instruments. This advancement is particularly appealing for investors seeking relatively low-risk chances to generate returns while maintaining liquidity.

It offers investment opportunities and financing avenues.

GSE’s Managing Director Abena Amoah, speaking at the launch in Accra, acknowledged the urgent need for change. “We need to do much more. Notably, attracting more issuers, diversifying products and boosting liquidity. This new CP market directly tackles these challenges.”

A key feature of the market is the requirement for ratings on CP issuances, which adds transparency and credibility. Investors can make informed decisions based on comprehensive risk assessments, fostering confidence in their investment choices.

The CP market offers businesses and corporations a viable alternative to traditional bank loans for meeting short-term financing needs, with maturities ranging from 15 days to 270 days.

The CP market’s formal framework sets clear rules for issuance and trading. According to the guidelines, CPs must have an investment-grade rating from a credit rating agency. Issuers with below-investment-grade ratings must provide acceptable credit enhancement. CPs can be issued as securitised debt, such as asset-backed or mortgage-backed securities.

The CP market’s formal framework also sets clear guidelines, including stringent eligibility criteria for issuers. Public limited liability companies incorporated in Ghana must have a tangible net worth of at least GH¢5million and a proven track record of profitability or a comprehensive plan demonstrating their ability to service financial obligations.

Moreover, issuers can opt for a shelf registration programme, allowing multiple CP issuances under a single registration, streamlining the process and fostering efficiency.

Ms. Amoah noted the strong corporate interest, stating: “We’ve had companies lining up to enter the market. Several Ghanaian companies have collectively issued GH¢275million in debt capital so far this year. And other companies plan to raise over GH¢1billion on our GFIM market this year”.

By diversifying their borrowing sources, companies can reduce reliance on a single financing channel, mitigating risk and enhancing financial resilience. This aligns with the broader goal of promoting a well-functioning and resilient financial system in Ghana.

Dr. Maxwell Opoku-Afari, First Deputy Governor of the Bank of Ghana and Chairman of the Governing Council of the Ghana Fixed Income Market, echoed this sentiment, hailing the initiative as “a significant milestone in the evolution of our financial markets and the economy at large”.

With the CP market’s launch, investors gain access to a world of short-term debt instruments, enabling them to diversify their portfolios and generate capital in ways previously unimaginable.

Deborah Mawuse Agyemfra, Deputy Director-General of the Securities and Exchange Commission (SEC), stated: “For investors, commercial paper presents an exciting opportunity to diversify and boost returns”.

She further underscored the SEC’s unwavering commitment, stating: “Establishing a formal framework for CP issuance and trading is a giant leap toward creating a robust market that meets diverse financing needs while offering attractive investment opportunities”.

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