Commercial paper market continues to regain popularity

• Cumulative commercial paper issues at Rs.4bn by Oct. up from Rs.3.4bn by end-2019

Commercial paper issuances have continued to pick up, indicating that the short-term money market instrument is regaining its popularity.

According to latest data available up to October, cumulative commercial paper issues were recorded Rs.4.0 billion in the first 10 months, up from Rs.3.6 billion in September and Rs.3.4 billion by end-2019. 

For the first time, the cumulative moneys raised through the not-so-popular financial instrument eclipsed the entirety of moneys raised during 2019. 

The continuous increase in commercial paper issuances denote that companies are stepping up raising short-term funds for their working capital and/or operational requirements.  

Commercial papers are typically short-term, mostly in 3-month tenors while at times they go up to six months.

Reinforcing this observation, a survey by the Central Bank showed last week that companies remain extremely optimistic of adding more bank borrowings into their balance sheets in the final quarter of 2020. While the money market activity as reflected by commercial papers is getting robust and dynamic, the capital market activity, which captures long term funding requirements, is also showing signs of robustness.

While new share issuances are yet to hit the Colombo Stock Exchange, mergers and acquisition activities are taking place in various sectors such as financial services, pharmaceutical and food and beverage. Meanwhile, the total outstanding commercial paper issuances by the end- October stood at Rs.2.5 billion, unchanged from September, but up from Rs.1.4 billion at the end of 2019. The Central Bank data available through end-August showed that interest rates on commercial papers have declined to a range of 9-15.50 percent during the eight months from a range of 13.5-16.25 percent in the corresponding period of 2019.