NASD looks to route private equity deals, crowd-funding

The National Association of Securities Dealers (NASD) wants private equity (PE) trades to be routed through its Over-the-Counter (OTC) market. It also plans to be the hub for crowd-funding.

The OTC self regulatory organisation (SRO) and exchange sees the harnessing of private equity and venture capital deals as a means through which volume and turnover in its nascent market can grow.

Private equity and venture capital firms take up positions and sell down their positions in unlisted firms, and these trades, which are usually large, go unrecorded.

“We have set up our committee, and we are looking at how we can build the PE market,” Bola Ajomale, NASD’s managing director, told capital market operators at a breakfast meeting. 

The NASD also wants to be the hub for crowd-funding, Ajomale said, noting that “it is another huge market, and rather than leave it to players outside, we want to bring it into the capital market.”

There are currently no rules anywhere in the world that caters to crowd-funding. “Nigeria is probably one of the first countries in the world that will come up with SEC-regulated rules for crowd-funding, and have one established market for crowd funding,” Ajomale further said.

Speaking about the difficulty in raising affordable capital in the Nigerian capital markets, Ravindranath Magapu, executive director, Acorn Petroleum, said: “We are in a position where we are finding sources of capital almost an impossible task.

“There aren’t many private high net worth individuals or common individuals who participate in Nigerian financial markets.”

The NASD has traded up to N46 billion in 1600 deals in about two years from its establishment. It hosts 23 companies listed on its exchange, 63 percent of which are currently profit making.

According to the Ajomale, the NASD provides a new frontier of capital market opportunities. NASD listed companies are grossly undervalued, and there are opportunities for restructurings, IPOs, and corporate takeovers, he pointed out.

“Some companies right now are trading at about 16 kobo. That is an amazing takeover opportunity. Some of them are grossly undervalued.

“In an OTC market, the only limitations are the imaginations of the players,” he said.

According to him, some challenges that the NASD OTC market currently faces include: the fees that registrars charge, which were as high as 1 percent of the value of the security being verified and dematerialised, and which brokers have complained about.

The SEC responded by issuing cease and desist order to the defaulting registrars.

The NASD also has plans to assist in solving the problem of lack of information that has hindered analysts and investors from gaining access to materials with which they can analyse the non-listed companies, before making investment decisions.

To address the problem of lack of information, the NASD plans to host executives of particular companies in analyst calls, in which analysts and investors can call-in to ask questions.

Near-term growth areas for the OTC market are linked notes for telecom firms who will be needing financing before eventually listing on the stock exchange, capital raising opportunities for power and utility companies through Special Purpose Vehicles, who are thought to be in dire need of raising capital, and the selling down activity of venture capital and private equity firms in which they hold positions.