Coronation Merchant Bank partners FMDQ on private market capital raising

Coronation Merchant Bank in partnership with Financial Markets Dealers Quote (FMDQ) has called on investors and issuers to explore opportunities being created to raise capital through the private market.

Coronation Merchant Bank as part of its advocacy, supporting Nigeria’s quest to become a leading destination for private capital investments, hosted its “coronation conversations” which centred on the theme “capital mobilization through the private markets.”

In his opening remarks the Managing Director/CEO of Coronation Merchant Bank, Mr Banjo Adegbohungbe, described the forum as an opportunity to facilitate productive engagements with stakeholders in the financial market. He said the theme of the event provided an opportunity to explore the potentials in the Nigerian capital market.

According to Adegbohungbe, private markets are witnessing very credible and sustainable levels of financing, in areas like technology and renewable energy, thereby providing hope that a well-positioned emerging economy such as Nigeria could draw on this large pool of international investible funds.

Suru Daniels, head, investment banking, Coronation Merchant Bank, said the private market is not necessarily new but it has not always been organised.

“What we are saying is that since last year the FMDQ has taken the initiative to organise the market. They are not the only ones in that space.

“I believe that over time other market operators will begin to bring private placement and venture capital type financing into a more organised structure. What is new is the deliberate effort being made to make it more organised,” he said.

On the benefits of the private market, he said it increases the number of investment opportunities available in the market. It provides issuers (companies looking for capital) the opportunity to access capital in an organised market. It also helps to direct new money into new projects.

The cost of raising capital is believed to be high generally but deliberate work being done is not only moderating that but also finding efficiencies, he said.

“There is a transparent cost structure that is now being contained for that is the advantage of having this structure.

“I expect that we will continue to see more private placement, regulatory intervention and we will continue to see increased issuances and investment opportunities. Issuers will need to compete with each other for investors’ attention in delivering better returns.

“So the more returns you deliver, the better returns you deliver, the more investors take you seriously and that enhances your capital raising capacity,” Daniels said.

In less than two years of establishment, Nigeria’s FMDQ has recorded transactions in securities worth N253 billion, bringing back already lost confidence in the market, due to the drying up of private placement.

FMDQ Private Markets Limited (FMDQ Private Markets) is an organised platform established to promote the inclusion of private companies in the capital markets.

FMDQ Private Markets, as one of the entities within the FMDQ Group, is strategically positioned to provide the much-needed information in the market for private companies’ securities and ultimately, improving credibility in the market for private issuances.

Delivering the keynote address, the Chief Executive Officer of FMDQ Group, Mr Bola Onadele Koko who was represented by Mr Yemi Oshinubi, the MD of FMDQ Private Markets said that private markets have always existed in Nigeria, but FMDQ felt it was important that the market be designed to provide a durable structure for its domestic growth.

Onadele Koko noted that the global private market size was currently $7.35trillion, with private equity leading in terms of the assets under management (AUM) of $4.35trillion, followed by real estate $1.09trillion, infrastructure and natural resources $0.88trillion and private credit $0.88trillion.

Speaking further he said the long-term growth in private markets has been quite substantial, stating that in 2020 about 11,000 firms participated in the global private market.

The pioneer managing director/Chief Executive Officer of FMDQ OTC Securities Exchange disclosed that the market has about 15 transaction sponsors right now in FMDQ private market.

“FMDQ private market was instituted in February 2020 and in that year we had about N100 billion in securities noted on that platform.

“This half-year we have about N153 billion in securities also noted. So close to about N253 billion has been noted on the platform,” he said.

They put together a perspective and then they present the issuers to the investors. The investors will see what the company is all about and they decide on how much they want to invest.

“The transaction sponsors are members of the FMDQ private market. They are very active. Coronation Merchant Bank is a transaction sponsor,” he said.

The other market participants he said include investors, Asset Managers, Trustees, insurance companies, and we are hoping we would bring along the pension fund Administrators (PFAs) to also be investors in the private market.

“FMDQ private market is also a CBN recognised capital market platform. We have an obligation. We do quarterly reporting to them. We have provided them with an operating framework and there is an ongoing engagement where we do our quarterly reporting to them.

“We think that should give confidence to the market, to the investor communities and to everybody who is participating, it is a recognised place and people are welcome to do business there.”

According to him, private placement used to be very active but it has sort of dried up. Companies who issue securities through private placement used to promise that in five years’ time they would list on the exchange, a number of them did not, for some reasons and that actually caused a decline in confidence by investors.

“We are trying to bring back that market in a way that will inspire confidence. FMDQ private market is organising that market on a platform and saying instead of this private placement happening in corners, let it come in a place with visibility, your documentation, your prospectors, your credit report, all these things should come on a platform for the investors to see,” Koko said.

According to him, FMDQ is reorganising or organising that market to make it visible so investors will have more confidence and participate more, then private companies will have the opportunity to raise money for their businesses.

On yields, he said there is no common yield, rather every company that comes to issue security prices according to the risk of that security and it depends on the interest rate environment.

He further stated: “When the interest rate dipped last year, some people may have issued at 13 per cent. Interest rates have gone up so yields may be 100 or 200 basis points higher.

“So yields will continue to fluctuate according to the interest rate environment. In the private market, the yields are higher than in the public market because the risk is slightly higher too and it is that risk that we were trying to bring down by making sure that information is available to investors.”

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Coronation Merchant Bank partners FMDQ on private market capital raising

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