AFEX, Nigeria’s first private sector commodities exchange, has reopened its $240 million (₦100 billion) Asset-Backed Commercial Paper (ABCP) to help stabilize the country’s agriculture industry.
“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,” said Alex Balogun, CEO at AFEX, via a statement.
“Access to low-risk funding and capital is critical to empowering Africa to feed herself. 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 (₦73 billion) investment in Africa’s food security.”
The new funding, the second installment of AFEX’s three-year Commercial Paper initiative, began in the fourth quarter of 2021 and raised $65 million (₦27 million). It aims to raise an additional $175 million (₦73 million) for processors that are unable to borrow in the commercial paper markets.
AFEX is increasing commodity trading efficiency and allowing the larger financial market to access the African commodities market.
Investing in agriculture
Agriculture continues to be one of the continent’s most important economic sectors, employing the majority of the people and accounting for 14% of GDP in Sub-Saharan Africa.
Despite this, many African economies face food security challenges due to a supply-demand disparity.
The ABCP is a short-term loan product that normally pays a competitive 15% return on investment and has a maturity of up to 270 days.
While most securities are issued by banks or other financial institutions, the ABCP Notes are sponsored by AFEX Commodities Exchange, and the proceeds 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 a pre-determined price.
The commodities that serve as credit enhancement in the transaction back up AFEX’s security.
AFEX lists the ABCP on ComX, its commodities trading platform, and subsequently solicits subscriptions from capital market operators for a specific period of time.
The funds raised will be utilised to give working capital to pre-qualified agro-processors so they can purchase commodities required for their production processes at a pre-determined price.