Rand Merchant Bank (RMB), the corporate and investment banking unit of FirstRand, has launched a digital debt marketplace that will allow companies to raise funding by issuing both listed and unlisted debt securities.
The digital funding platform, called Intengo, is available to creditworthy companies and will enable SA corporates to reduce their reliance on bank loans for funding by instead issuing debt instruments on an easily accessible online platform. RMB says the next phase of the Intengo platform, which has already been used by Aspen Pharmacare to raise R410m in capital via a recent bond auction, will be to allow secondary trading in the debt instruments, which it hopes will boost liquidity in SA’s corporate credit market.
Intengo was originally an internal project incubated within RMB, but has since expanded into a stand-alone company that allows corporates to issue fixed-income securities online for purchase by institutional investors, either via private placement or by competitive auction. RMB says the instruments issued via Intengo can be either unlisted securities or listed instruments on the JSE.
“Intengo will augment both the origination capabilities as well as the investment opportunities for our issuers and investors as clients in the primary and secondary market,” said Emrie Brown, head of investment banking at RMB. “By streamlining the processes and providing market transparency, Intengo aims to attract more corporate issuers to utilise the debt capital markets to raise funding. Also, the upcoming secondary marketplace module will assist investors with more accurate price discovery, resulting in deeper pools of liquidity.”
RMB says it hopes that Intengo will eventually lower costs and increase liquidity in a corporate debt market that is not often used as a source of funding by SA companies, which unlike their US counterparts tend to favour bank loans over issuing debt securities. By helping to deepen the corporate credit market in SA it will also allow RMB to facilitate greater lending to its blue chip client base without having to shoulder the entire loan liability on its own balance sheet.
SA’s market infrastructure for the issuance, clearing, settlement and trading of corporate debt instruments is still a largely complex and manual process that has been dominated by the JSE ever since its 2009 buyout of the Bond Exchange of SA . The cost of listing debt instruments on the local exchange, which also comes with strict regulatory requirements, often acts as a deterrent for companies to raise funding via the debt capital markets with many instead favouring bank loans as a more accessible option.
Since SA companies don’t often issue corporate debt instruments as much as their counterparts in markets such as the US, these debt securities are often tightly held by investors until they reach maturity. That, in turn, means there is little secondary trading in corporate bonds in SA, a factor that has further stunted growth in the corporate credit market.
Intengo is dubbing itself as the first and only marketplace in SA that acts as a single hub for both issuers and investors, allowing debt instruments to be issued through an online auction system offering transparent price discovery, deal settlement while also acting as a document repository.
“Unlike our equity and government bond markets which have deep pools of liquidity and provide accurate price discovery, the SA corporate debt capital market is illiquid and is not conducive to accurate price discovery — nor is it transparent as it should be,” said Brown.
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