FMDQ has registered transactions in securities worth N253 billion in less than two years of operation, restoring market trust that had been lost due to the drying up of private placements.
FMDQ Private Markets Limited (FMDQ Private Markets) is a well-organized platform dedicated to promoting private enterprises’ participation in the capital markets. FMDQ Private Markets, as one of the FMDQ Group’s enterprises, is strategically positioned to supply much-needed information in the market for private companies’ securities, hence boosting market credibility for private issuances.
Bola Onadele Koko, the first managing Director/CEO of the FMDQ OTC Securities Exchange, revealed that the FMDQ private market currently has roughly 15 transaction sponsors. He mentioned this during a meeting of the Coronation Merchant Bank in Lagos on Monday.
“In February 2020, the FMDQ private market was established. We had roughly N100 billion in securities noted on that platform that year. We have around N153 billion in securities noted for the first half of this year. So far, N253 billion has been recorded on the platform,” he explained.
According to Yemi Osinubi, head of private capital at FMDQ, the ecosystem is made up of people known as FMDQ private market members. They are transaction sponsors, or issuing houses, that assist businesses in putting together their documents, reporting accountants, and financial statements.
They compile a prospectus before presenting the issuers to the investors. He explained that investors will learn about the company and then determine how much they want to invest.
“The transaction sponsors are FMDQ private market participants. They’re quite active. He explained that Coronation Merchant Bank is a transaction sponsor.
Investors, asset managers, trustees, and insurance firms are among the other market participants, according to him, and he hopes to entice Pension Fund Administrators (PFAs) to become private market investors as well.
“The MDQ private market is also a capital market platform recognized by the CBN. We have a responsibility. We provide them with quarterly reports. We’ve supplied them with an operating structure, and we’ve agreed to continue working with them on a quarterly basis. We believe that this will instill trust in the market, investment communities, and everyone else involved; it is a recognized location where people are welcome to do business,” he said.
The private placement, he claims, used to be highly active but has since dried up. Companies that issue shares through private placement used to pledge that they would list on the Exchange in five years; however, a number of them did not, for various reasons, resulting in a loss of investor confidence.
“We’re attempting to resurrect that market in a manner that inspires confidence. “The FMDQ private market is organizing that market on a platform and saying that instead of this private placement happening in corners, let it come in a place where it is visible, where your documentation, your prospectors, your credit report, all of these things should come on a platform for the investors to see,” Koko said.
It’s not like we’re abandoning that market. We’re reorganizing or organizing that market to make it more visible so that investors will have more confidence and participate, and private enterprises will be able to raise funds for their operations.
In terms of yields, he explained that there is no standard yield; rather, any corporation that comes to issue a security price it according to the risk of that security, which varies depending on the interest rate environment.
“Some people may have issued at 13 percent when interest rates fell last year. Because interest rates have risen, yields could be 100 to 200 basis points higher. As a result, yields will continue to fluctuate in response to interest rate changes.
“The yields are greater in the private market than in the public market because the risk is slightly higher as well, and it is that risk that we were seeking to reduce by ensuring that information was available to investors,” he explained.
The private market isn’t necessarily new, but it hasn’t always been organized, according to Suru Daniels, head of investment banking at Coronation Merchant Bank.
“What we’re arguing is that the FMDQ has taken the lead in organizing the market since last year. They aren’t the only ones in the vicinity. Other market participants, I believe, will begin to put private placement and venture capital financing into a more organized structure over time. What’s new is the concerted attempt to make it more organized,” he explained.
On the advantages of the private market, he stated that it expands the number of investment alternatives available. It allows issuers (businesses in need of financing) to obtain capital in a well-organized market. It also aids in the allocation of new funds to new projects.
The cost of acquiring capital is thought to be high in general, but he claims that purposeful work is being done to not only moderate it but also uncover efficiencies.
“This is an advantage of having this structure because there is a transparent cost structure that is now being contained.
“I believe we will see more private placements, regulatory action, and expanded issuances and investment opportunities in the future. Issuers will have to compete for the attention of investors by producing better returns. As a result, the more and higher returns you deliver, the more investors will take you seriously, increasing your capital raising capacity,” Daniels explained.
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