AFEX, a leading Nigerian commodities market player and the first private-sector commodities exchange, announced on Monday the reopening of its $240m Asset-Backed Commercial Paper (ABCP), which will help stabilize the country’s agriculture sector by offering low-cost financing to Agro-processors to bridge the funding gap between lenders and borrowers.
The funding will be AFEX’s second in a three-year Commercial Paper program that started in the Q4 2021, where $65m was raised. The startup seeks to raise an additional $175m for processors who ordinarily would not have been able to borrow in the commercial paper markets.
The Asset-Backed Commercial Paper (ABCP) is a short-term debt instrument that typically provides investors with a competitive 15% return on investment. The maturity is up to 270 days. Although the banks and other financial institutions typically issue the security themselves, the ABCP Notes are sponsored by AFEX Commodities Exchange, and the proceeds of the issuance will be used by AFEX Investment Limited to provide pre-qualified Agro-processors with working capital support to enable them to purchase commodities required for their production processes at an agreed price.
AFEX’s security is backed by the commodities serving as the credit enhancement in the transaction. AFEX lists the ABCP on ComX, its commodities trading platform, and engages capital market operators to subscribe for a set period. Funds raised are used to provide pre-qualified Agro-processors with working capital to buy needed commodities for their production processes at an agreed price.
Agriculture is one of the most important economic sectors in Nigeria. The sector contributes significantly to the country’s GDP. In the Q3 2021, it contributed almost 30 percent of the total GDP, yet the nation is struggling with food security due to the gap between supply and demand in the sector.
Ayodeji Balogun, CEO of AFEX, said in a statement, “AFEX has a strong track record in offering distinctively differentiated and innovative financial instruments to the marketplace, and this new Asset-Backed Commercial Paper will help bridge the gap between Agro-processors and investors. Access to low-risk funding and capital is critical to empowering Africa to feed itself. We believe in making capital that is a right fit, in terms of timeliness and structure, available for all players in the value chain. Based on our past performance, we are confident that we will attract even more financing from private investors and, subject to value for money, they will help us secure this $175m (₦73bn) investment in Africa’s food security.”
AFEX, in its 7 years of existence, has been committed to leveling up Africa’s agro-tech sector by boosting food security and making food production more efficient, harnessing its commodities and talents to build shared wealth and prosperity.
