18 February 2013

Nigeria: We Support Infrastructure Developers Through Financing - Larbie


Rand Merchant Bank Nigeria (RMB), an arm of the South African financial services provider, Firstrand, recently opened its doors as one of the first merchant banks to operate under the new banking model. Its Chief Executive, Michael Larbie, spoke with Blessing Anaro & Bukola Idowu on the revolution the new bank intends to carry out in Nigeria as well as other economic issues. Excerpts

Tell us about Rand Merchant Bank

Rand merchant bank is a division of Firstrand. Firstrand is a $20 billion JSE-listed financial company offering three main divisions.

One of them is RMB which is the corporate and investment banking division, FNB which is a retail and commercial division and Wesbank which is the assets division. It is an integrated universal banking operation. We at RMB where I am the chief executive for Nigeria is a corporate and investment bank. As a corporate and investment bank, we provide corporate advisory solution. Our businesses comprise equity, which is private equity, investments, which encompass the investment banking side of the business, which is divided into three: One is advisory where we provide M&A advisory, debt advisory, equity advisory, project finance advisory to clients and corporates and then in the financing side of it we provide financing for a broad range of clients as well as a broad range of services which include debt capital market, for the company which wants to go into public markets.

On structured assets, we also package assets and we finance them, which could involve equipment financing for the mining or oil and gas sectors. We also do general corporate lending to companies. That is the financing side. The third leg of it is the risk management/global market side. It involves trading, fixed income trading, equity, money market and commodities trading. The risk management side of it is interest rate hedging, foreign exchange hedging, foreign exchange trading and those solutions and advisories. Broadly, we have corporate banking side where we provide transactional banking solutions, collections, short term working capital financing. That is the full spectrum of corporate and investment banking that RMB is going to see to and that's the merchant banking licence we have acquired.

Is there any particular area where you will be playing strongly?

We are a big player. We'd like to be a big player in the economy. We are very innovative. We provide innovative solutions and products for our clients. We innovate products and apply traditional values to them. It doesn't matter what sector it is. If a client has a need and it can be structured in a risk efficient way, in a credit efficient way, we will structure it. We play quite well in the telecoms sector, agriculture, financial services, oil and gas, mining. We are very strong in mining, we are very strong in logistics, broad services. We are a diversified financial services company. We go where our clients take us.

Do you think the Nigerian capital market is set for a vibrant primary market, considering the failed offers it has witnessed in the last few years?

I think one needs to step back and understand the challenges of the last two to three years and I think primary issuances in the equity market is not unique to Nigeria. You can look at the US, UK, Asia, Europe, where attempted listings in some cases have actually been withdrawn because the market appetite was not there. The pricing wasn't where it was expected and even where they still pushed it trough, it failed miserably. But markets in the last few years have been challenging in general so we have seen a reduction in new issuances coming to the market. I think one also needs to be understandable of where Nigerian investors are coming from. We have the issue of the banks bailout and the impact thereof on the market itself where investors have lost a lot of money and the market in general was down. I think folks are a lot more cautious as to how they approach the market and where they participate. It's going to take some time for the market to work itself out of it, but that does not mean that when good issues come to the market, well structured, well managed by the right banks or rather by those who know what they are doing and understand how to get through deals of these nature in such challenging times it couldn't be done. We hope that with our experience and capability of having taken companies public and supported them through both challenging and good times, we would be seeing other players in the Nigerian market that understand how to manage issuances, how to package it right and to drive the right interest in it. We hope our clients would come to know us for this.

You are currently working with the Africa Finance Corporation on infrastructure development, what are the details?

RMB lent IFC a $50 million loan. It goes to show our support for infrastructure development and what AFC is intending to do. The AFC is a critical player in not just the Nigerian market but the broader African market. We like what they do and we want to see them as a partner. Infrastructure financing is one of our core competencies. We do infrastructure financing, what we can't do is infrastructure development. We're like a commercial bank, we like people who are good at infrastructure development to take the lead, we come in and support them through financing to actualise the deal.

Last year, Firstrand tried to acquire a commercial bank here in Nigeria, is RMB a shift in focus or a first step to a destination?

I'd try not to speak on behalf of Firstrand. As a division of Firstrand, we believe in Firstrand strategies and where it is going and our activities and markets are in line with what Firstrand wants to do. I wouldn't necessarily say RMB being on ground is a substitution or a shift in focus of what they are trying to do. As a matter of fact, it is in line with what Fristrand is trying to do. There are multiple ways to enter a market and as you know, Firstrand has multiple divisions. If the deal had been done, RMB would still be here. RMB would have come in on the heels of the retail and commercial bank. In the same vein, RMB is here, other sister companies can also come on the back of RMB in the market. RMB is here to stay in the near term as a merchant bank which we have been granted licence to operate. We intend to abide by the rules and regulations and the activities stipulated by the merchant bank and we'll continue to do that until things are otherwise.

Are there any plans to be listed on the Nigerian Stock Exchange?

Listing decisions is one to be taken by the parent holding company. The listed entity is Firstrand and the decision to be listed on the NSE will be made by Firstrand. I will suppose that Firstrand will want to list a business that feels and looks like itself, otherwise, you create arbitrage in the various markets. I do believe at the right time when Firstrand feels it has got a platform and business that mirrors exactly what it is today, then it will consider all the opportunities open in the market. But it is too soon for me to say, I am not the decision maker on it. What I can assure you is that Firstrand embraces the market, it is a good corporate citizen and a good community player in the market it operates in and in RMB we believe in the values of Firstrand.

How would you rate the Nigerian debt market?

I think the government is doing its best to introduce incentives for the further development of the market. Unfortunately, the market historically has been dominated by the federal government bonds as well as the state government bonds. Overtime, too much of it crowds the private sector out of the market because if an investor can get government paper for 13.5 or 14 per cent, you gravitate towards that for the perceived riskless nature of it. If the government bond is going at 13 to 14 per cent, the corporate needs to beat that risk free rate. This makes it quite challenging for the private sector not to mention the fact that the federal government bonds are tax free. So when you look at risk free and the tax free nature of the bonds, corporate bonds need to be about 400 or 500 basis points higher in yields for you to consider doing corporate bonds vis-a-vis the government bonds. But the government has made some initiatives; the corporate bonds are now tax free. I think that levels the playing field. I can buy a corporate bond and the interest I earn on the bond is tax free. I am quite encouraged by the federal government issuing Eurobonds, I think overtime, as the federal government looks to tap more form the Eurobond and also reduce its borrowing locally, it should free up money that can then go to the private sector bond. We are quite encouraged by what we see as the future of the Nigerian bond market.

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