ISSUANCE OF COMMERCIAL PAPERS IN NIGERIA: LEGAL AND REGULATORY REQUIREMENTS

INTRODUCTION

All over the world, companies seek flexible financing to cover working capital needs, like payroll, inventory, and accounts payable from time to time. Among these instruments, Commercial Papers (CPs) have emerged as a viable alternative to traditional bank financing, offering cost-effective, unsecured short-term funding through the capital markets.

In Nigeria, CP issuance is governed by a robust regulatory framework, requiring compliance with the guidelines of the FMDQ Securities Exchange, the Central Bank of Nigeria (CBN), and the Securities and Exchange Commission (SEC). Eligible issuers must satisfy stringent eligibility criteria, obtain credit ratings, and comply with documentation and disclosure requirements.

This article provides a comprehensive overview of the legal and regulatory prerequisites for issuing commercial papers in Nigeria, covering issuer eligibility, documentation, intermediaries’ roles, and the impact of CBN prudential limits.

A.  WHAT ARE COMMERCIAL PAPERS?

Commercial Papers (CPs) are short-term, unsecured debt instruments issued by companies to meet immediate funding needs. These instruments, usually structured as promissory notes, are typically offered at a discount and have tenors ranging from 15 to 270 days. Unlike bank (secured) loans, CPs are not backed by collateral because investors rely on the issuer’s creditworthiness and rating.

Key Features of Commercial Papers in Nigeria

1. Nature & Purpose: Unsecured debt instruments for short-term liquidity needs.
2. Eligible Issuers: Only investment-grade corporations (or those with qualifying guarantors) may issue CPs.
3. Tenor: 15–270 days (extendable to 30 days minimum where no bank guarantee exists).
4. Pricing: Discount-based or interest-bearing.
5. Issuance Channels: Direct placement or through Issuing Houses and Placement Agents.
6. Non-convertibility: CPs cannot be converted into equity.
7. Regulatory Oversight: Governed by SEC, FMDQ, and CBN regulations.
8. Investor Base: Institutional investors (pension funds, insurers, asset managers, HNIs).

B.  APPLICABLE REGULATORY FRAMEWORK

The following regulatory frameworks govern CP issuance in Nigeria:

• Central Bank of Nigeria Guidelines on the Issuance and Treatment of Bankers’ Acceptances and Commercial Papers (2019)
• FMDQ Rules for the Quotation of Commercial Papers
• Companies and Allied Matters Act (CAMA), 2020
• Investment and Securities Act (ISA), 2025
• SEC Rules and Regulations (as amended in 2013 and further updated in 2025).
• Relevant Nigerian Stock Exchange Rules (where applicable)

FMDQ, a self-regulatory organisation and SEC-registered exchange, is central to CP quotation and registration. The SEC oversees market behaviour and compliance, while the CBN regulates CPs, particularly those backed by deposit money banks (DMBs).

C. WHO CAN ISSUE COMMERCIAL PAPERS IN NIGERIA: ELIGIBILITY REQUIREMENTS FOR ISSUERS

To be eligible to issue CPs in Nigeria:

• Be a company duly incorporated with the Corporate Affairs Commission (CAC) pursuant to the Companies and Allied Matters Act (CAMA), 2020.
• Have a minimum of 5 (five) years’ incorporation and at least three years of business operations.
• Possess a minimum of NGN 500 million in shareholders’ funds unimpaired by losses.
• Provide audited financial statements for the past three years. The most recent must not be older than 12 months (FMDQ requirement) or 18 months (CBN requirement).

Kindly note that, notwithstanding the above, Companies not meeting these criteria may issue CPs if backed by a qualified guarantor (e.g., a bank or insurance company) meeting the eligibility standards and willing to assume default risk.

D. CREDIT RATING REQUIREMENTS

A valid credit rating from a SEC-registered rating agency is mandatory. Both the issuer and the specific CP issuance must attain at least a valid investment-grade status (e.g., BBB- or equivalent).

 The process involves:

1. Indicative Rating (pre-issuance assessment).
2. Final Rating (prior to each tranche issuance).

This dual-rating process ensures transparency and investor confidence in creditworthiness.

E. ROLE OF INTERMEDIARIES

Licensed intermediaries facilitate CP issuance, including:

• Issuing Houses (FMDQ-registered): Advise on structuring, documentation, and regulatory liaison.
• Placement Agents: Coordinate investor subscriptions.
• Paying Agents & Custodians: Manage settlement and dematerialization.

F. TENOR AND PROGRAMME REGISTRATION

• Minimum tenor: 15 days (30 days if unguaranteed).
• Maximum tenor: 270 days.
• Programme duration: Up to three years (subject to FMDQ approval).

All CPs must be dematerialized and deposited with a licensed securities depository (e.g., FMDQ Depository or CSCS).

G. CBN PRUDENTIAL LIMITS ON BANK GUARANTEES

Where CPs are bank-guaranteed, the CBN imposes:

• Single obligor limit: Max 30% of the bank’s unimpaired shareholders’ funds.
• Total exposure cap: Max 150% of the bank’s unimpaired shareholders’ funds.[1]

These measures mitigate systemic risk and excessive credit concentration.

H. REQUIRED DOCUMENTATION FOR COMMERCIAL PAPERS

Key documents required for the issuance of commercial papers include:

a. Internal Documentation

• Board Resolution to borrow/access credit facilities
• CP Raising Mandate (internal authorization to initiate the CP programme)
• Issuing House Mandate Letter
• Legal Due Diligence Report
• Auditor’s Confirmation Letter (if required)
• Declaration of Solvency (optional but recommended)
• Internal Credit Approval (for guaranteed CPs)
• Backstop Loan Request / Liquidity Support Agreement (for guaranteed CPs)

b. Transaction Documentation

• Information Memorandum
• Commercial Paper (Note)
• Pricing Supplement (per tranche)
• Trust Deed (where applicable)
• Guarantee Agreement (where applicable)
• Issuing, Placing, and Paying Agency Agreement
• Custodial & Depository Agreements
• Investment Instruction / Investment Mandate
• Investment Advice (to institutional investors)
• Rating Report from a registered Credit Rating Agency
• Legal Opinion from Solicitors
• Registrar Agreement (where applicable)
• CP Programme Agreement (for shelf programmes)

c. Regulatory & Exchange Submissions

• SEC Notification or Registration Documents (where required)
• FMDQ Registration Forms and Compliance Checklist
• CSCS Documentation (for dematerialization and settlement)
• Evidence of Payment of Applicable Fees (SEC, FMDQ, CSCS)
• Final Approval Letters (from SEC/FMDQ as applicable)

I. LEGAL CONSIDERATIONS AND ENFORCEMENT

CPs create enforceable contractual obligations. In cases of default, investors may initiate legal proceedings to recover principal and accrued interest. Where a guarantee exists, the guarantor or paying agent may be required to fulfil the payment obligation.

Issuers must ensure full compliance to avoid legal liability and reputational damage. Under the ISA and SEC Rules, issuers and directors may be held civilly or criminally liable for material misstatements or omissions in CP documentation.

CONCLUSION

Nigeria’s commercial paper market offers eligible corporates a flexible and cost-effective avenue for short-term capital raising. However, successful issuance demands strict adherence to regulatory requirements, including eligibility criteria, credit ratings, documentation standards, and prudential limits.

The coordinated oversight by CBN, FMDQ, and SEC ensures market transparency and stability. To navigate this process efficiently, issuers should engage experienced legal advisers with expertise in CP regulations and capital market procedures, ensuring a seamless and compliant fundraising exercise.

At AO2LAW, we maintain a foremost financial services advisory practice situated within our Commercial and Criminal Law Practice Group (CCLP). Our Practice brings to bear our expertise in core Financial Services and Technology Advisory, Regulatory Compliance, Mergers and Acquisitions, and Capital Market services.   

For further information on the foregoing (none of which is legal advice) or related matters, please generally contact us at cclp@ao2law.com, or specifically contact