Robust commercial paper market indicates renewed optimism

• Value of Jan.-Sept. commercial paper issuances exceeds 2019 full year 

The value of new commercial paper issuances during the nine months to September eclipsed the total amount issued during the whole of 2019. 

According to the latest data, the issuers have issued commercial papers with a total value of Rs.3.6 billion by end-September, up from Rs.3.3 billion in August and Rs.3.4 billion in December 2019. 

“The interest rates on CPs lowered to a range of 9.00 percent to 15.50 percent during the eight months ending August 2020, from a range of 13.50 percent to 16.25 percent in the corresponding period of 2019,” the Central Bank said in a special report in reference to the not so popular money market activity in Sri Lanka, yet billions of moneys are raised by a number of corporates.

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

By end-August, commercial papers with maturity up to three months accounted for 69.2 percent of the market, while the six-month maturities accounted for the balance.   

The data on commercial papers, debenture issues, trust certificates and bank deposits, suggests that the financial markets in Sri Lanka have found renewed optimism in 2020, despite the virus-induced shock. 

The active financial market is also an indication that the corporates are vigorously pursuing growth opportunities sparked by the confidence on the future of the economy reinforced by a stable government and policy stability. 

Lower taxes and the tax policy consistency maintained by the new government give the investors and corporates predictability, a characteristic that was lacking in Sri Lanka in recent times. 

Meanwhile, the value of total outstanding commercial papers by end-September was at Rs.2.5 billion, up from Rs.2.1 billion in August and Rs.1.4 billion in December 2019.