Blockchain technology will disrupt securities market in 2022 - Ayere, Group CEO, DLM Capital

“DLM Capital Group has contributed significantly to the growth of the market by advising stakeholders on the drafting of the quotation and listing rules for fixed income securities, commercial papers, asset-backed securities, and mortgage back securities on its platform

Thank you for this interview opportunity with Business A.M. How would you describe the journey so far for DLM Capital Group since its incorporation in Nigeria? DLM Capital Group birthed as a boutique investment house in Nigeria’s debt capital market visioning itself Nigeria’s foremost developmental investment banking firm. Founded by investment banker SONNIE AYERE, its Group Managing Director and Chief Executive Officer, it has evolved from a debt house to a diversified financial services group that provides innovative financial services solutions to retail, corporate and non-corporate clients through its seven operational subsidiaries. In a scheduled meeting with BUSINESS A.M.’s CHARLES ABUEDE, the DLM Capital’s group CEO shared a number of development strides the company has racked up under its belt, including registering the first commodities backed commercial papers worth N50 billion, its role in Nigeria’s first telco bond by MTN Nigeria’s worth N110 billion; launch of its digital Bank-Sofri by H2:22; its goal to offer seamless banking services to the Nigerian population; and DLM outlook for 2022. Following are EXCERPTS:

DLM WAS FOUNDED IN 2009 as a boutique investment house, with a focus on debt transactions and interests in stimulating growth within Nigeria’s Debt Capital Markets. At the time, there was little activity in the debt capital markets as potential issuers relied heavily on funding from commercial banks and the market infrastructure was still in its infancy. DLM has since evolved from a debt house to become a diversified financial services group that provides innovative financial services solutions to retail, corporate and non-corporate clients through its seven operational subsidiaries.

The Group provides several services including, investment banking, investment/portfolio management, retail and corporate credit, securities trading, trust services and foreign currency intermediation through its different subsidiaries including, DLM Advisory, DLM Asset Management & Research, Citihoms Finance Limited, Links Microfinance Bank, DLM Securities, DLM Trust and DLM FX. The most recent addition to the DLM Group was the acquisition of Links Microfinance Bank in 2020.

The group has achieved several milestones in the last year. We successfully established DLM Multi-Issuer Bond Programme under which ten mid-sized firms have accessed the market. Our asset management company registered DLM Fixed Income Fund targeted at income generation and capital preservation. Most recently, the Group registered its novel CP programme - N20 billion commercial papers programme - on the FMDQ OTC Exchange and has successfully issued its inaugural Series 1 of N2.44 billion commercial papers under the programme.

The year 2021 also saw DLM register the first commodities backed commercial papers programme in the domestic debt market with the launch of the N50 billion Commodities Funding Programme, which is intended to provide commodities buyers with short term local currency funding options from the commercial paper market, with tenors of up to 270 days, for the purpose of bulk purchases of agricultural commodities.

DLM Capital Group has overtime contributed significantly to the growth of the market by advising stakeholders such as the Securities and Exchange Commission, the FMDQ Securities Exchange, among others, on the drafting of the quotation and listing rules for fixed income securities, commercial papers, asset-backed securities, and mortgage back securities on its platform. We are also at the forefront of several market initiatives including the issuance of varying debt instruments in the market. Some examples include floating rate securities, residential mortgage-backed securities, FGN guaranteed securities and asset-backed securities. DLM has also been instrumental to certain market reforms including, the mortgage foreclosure law in some Nigerian states.

Take us through the Nigerian capital market in 2021. What were the major highlights or roles played by DLM Capital Group in securities sales and trading, asset management and financial advisory?

The global economy was caught by the outbreak of the Covid-19 pandemic resulting in problems ranging from supply chain disruptions, lower industrial output, volatility in commodity prices, and in some cases, higher inflation rates. In the first half of 2021, the Nigerian equity market recorded weak performance, as the benchmark All Share Index (ASI) declined

by 6.2 percent to 37,907.28 points in June 2021. The weak performance in the equity market followed the increase in yield levels across tenures in the fixed income market, which resulted in investors’ inclination to reallocate investments assets from equities to fixed income during the period. The equities secondary market saw domestic investors accounting for 78 percent of market activities, while foreign investors accounted for 22 percent. Whilst the IPO market remained quiet, about N13.6 billion was raised through rights issues.

Over the same period, the attractiveness of the fixed income securities rose as the yields on the 5-year FGN bond, 7-year FGN bond, and 10-year FGN bond increased from 6.3 percent, 6.0 percent, and 7.3 percent at the beginning of the year, to 12.0 percent, 12.48 percent, and 12.6 percent, respectively, as of 10th December 2021.

Corporate bond issuances were active in 2021 albeit below 2020 levels, reflecting domestic corporate issuers’ desire to access funding from the debt market to support business expansions. Some of the significant corporate issuances in 2021 include the debut N110 billion issuance by MTN Nigeria Communications in May, which is the first issuance by a telecommunications company in Nigeria, the N41.21 billion issuance by Fidelity Bank in February, and the N35.9 billion issuance by Dangote Cement in May 2021. As of 16th December 2021, the total outstanding value of corporate bonds issued in 2021 listed on the FMDQ stood at N226.21 billion.

DLM highlights for the year 2021 include the establishment of the first Multi-Issuer Bonds Programme in Nigeria under which ten mid-sized firms have been provided with funding. We also launched the DLM Fixed Income Fund, registered a N50 billion Commercial Paper Programme for financing the purchase of agricultural commodities post-harvest and a N20 billion DLM Capital Group Commercial Papers Programme on the FMDQ OTC Exchange.

You have a philosophy to deliver bespoke financial and investment solutions to clients in the Nigerian financial market. What has the journey been so far for DLM Capital Group and how has this philosophy played out in your growth since inception and across subsidiaries?

In line with our mission to constantly deliver bespoke financial and investment solutions to our clients, DLM is consistently offering different financial services and products through its various subsidiaries in investment banking, trust services, asset management, securities trading, forex trading and digital banking. The institution thrived in the last years majorly due to its ability to provide clients with bespoke financial solutions suited to the economic times.

A good example is the introduction of future flow securitization to the market, which offers investors a new asset class and the establishment of the DLM Multi-Issuer programme. This initiative has increased the number of issuances we’ve achieved in a given year since inception. As a benefit, a transaction originating from Advisory provides business opportunities for other subsidiaries in the group.

In November 2021, DLM Capital quoted its N20 billion CPs on the FMDQ OTC Exchange. Also, during the year 2021, DLM Advisory acted as a joint issuing house to MTN Nigeria’s N110 billion bonds raised from the debt capital market. What does that move mean for DLM Capital Group’s retail and consumer finance business? What prompted the CP quotation?

DLM Capital Group quoted its commercial paper programme to fund its working capital requirements and to support its corporate and retail lending subsidiaries in facilitating intermediation for both the financial market and seekers of capital. DLM identified some of the funding challenges faced by corporates and retail clients and seeks to deploy its expertise to provide workable solutions in these regards. Due to the stringent requirements of the capital market, many prospective issuers are unable to access funding through the markets. Similarly, the inability to adequately price risk and the inaccessibility of credit profiles constitute a major challenge to retail access to credit. DLM, therefore, seeks to intermediate in this space through the issuance of its debut CP programme.

It is expected that the programme will further establish the DLM’s significance as a developmental financial institution in the market and improve its brand perception and acceptability in the financial markets. More so, the move showcases the confidence placed by the market in the Group’s vision and leadership.

You have Viewpoint Bureau De Change (BDC) as a subsidiary. What’s next for the subsidiary following CBN’s dramatic twist to FX sales to BDCs in Nigeria. What has been the impact of the decision on your profitability, labour, as well as the diversification plans of the company regarding trading of foreign exchange?

The discontinuance of sales of forex to bureau de change (BDC) operators in Nigeria does not in any way stop the operations of Viewpoint Bureau De Change - a subsidiary of DLM Capital, even as we note the impacts of the CBN’s decision on its cash flows. While foreign currencies sales from the CBN were a major source of forex flows to BDCs operators in Nigeria, there are other sources of forex supplies such as remittance flows from the diaspora through the informal source which the operators can harness to support their dollar liquidity and operations. Some BDC operators buy dollars from travellers, international oil companies and government officials that have access to estacodes. Large BDC operators can attract between $2,000 and $10,000 daily from travellers who normally do not exchange their money in banks because of rate disparities. Forex flows from these media and other private sources can provide a sustainable level of liquidity for operators.

SEC rule for licensed trading houses and dealing members stipulates that clients’ interests should be in the forefront to ensure transparency, integrity and confidence in the capital market. Describe DLM’s relationship with clients and its promoters over the years.

We at DLM have an internal code of ethics which governs our internal processes and our relationships with existing and prospective clients. We understand the importance of building a trusting relationship with our clients and promoters, as it is a key factor for our success and growth as an institution. It is also necessary to mention that the market thrives on the integrity of market participants which is fundamental to all our dealings. At DLM, we believe that achieving a long term growth target involves strengthening our relationships with clients and investors. This we have always adhered to, and by fostering these relationships, we have been able to maintain robust affiliations of returning clientele.

Your activities across banking, finance, advisory and capital market have been laudable. You moved into the digital banking space, launched Sofri to tap into Nigeria’s growing fintech space in 2021. Walk Business A.M. through the journey to obtaining the license and what has been the journey after the launch of Sofri?

Our desire to further deepen social value creation and financial inclusion in the Nigerian market necessitated DLM’s move into the digital banking space, which turned out to be a huge success. As a result of this move, we have created a strong digital bank (Bank-Sofri), which will be the ‘bride’ of the Nigerian banking population. The young-at-heart, in particular.

We have built a credit framework that combines artificial intelligence, machine learning, and business intelligence models to help us identify credit risks and mitigate them. We are optimistic that by the second quarter of 2022, the Nigerian digital lending space will experience a unique brand of a digital bank that serves as a one-stop-shop for all the financial needs of customers.

Our digital platform is designed to provide our customers banking services with ease. Consider a digital platform that enables customers to make multiple transactions in a single click. Get quick loans and pay your bills at low rates. Also, our Sofri card for easy payments across the web, POS, etc.

What are the factors or the unique selling points that have helped DLM Capital’s management retain market share as a leading broking house in many transactions with clients and promoters?

DLM’s unique selling point is in the niche we have carved for ourselves in proffering innovative solutions that our competitors are unable to provide, especially within the investment banking space. One of our unique selling points is our commitment to the understanding of the market and our client’s needs and our tenacity in striving to provide solutions that help our clients in achieving their business objectives. Unlike our competitors, we are willing to take on difficult tasks and to learn along the way as we hold our clients through uncharted waters. We have successfully displayed this fit in our story of firsts within the industry. Some recent examples include the first asset-backed commercial paper programme in sub-Saharan Africa (excluding South Africa), the first multi-issuer private bonds programme in Nigeria, the first securitisation within the domestic capital market, and remaining the only house among our peers, to have successfully executed securitisation transactions in Nigeria.

Let’s pick your brain on this. Within four years, we have about 20 companies that got delisted and only seven companies got listed on the NGX in the Nigerian equities market. Does it not reflect a weak and unattractive economic environment for the nation? How do you think we can get more firms listed on the exchange?

I would like to address the stance that delisting activities reflect a weak economy; rather it indicates a weakening capacity to reflect our economy on the market, and weak incentives to keep them listed. To attract firms to list on the exchange, institutions must be able to measure quantitatively and qualitatively, the benefits of accessing public capital vis-à-vis the cost of maintaining the listing status. Two significant benefits for firms include ease of access to capital and enhanced brand perception, while some costs may include increased information disclosure, adherence to regulatory requirements and increased pressure from the public. Considering the adverse risk appetite of investors towards equity markets, it becomes challenging for corporates to balance these benefits. Therefore, to encourage listing on the equity markets, it is first necessary to advance courses that affirm investor confidence and revive the equity markets.

What is the outlook for DLM Capital Group in 2022 and beyond? What is the latest disruption and innovation coming from the firm and its many fintech efforts into the Nigerian market?

We believe that in 2022 we would see a growth in the number of private bond issuances with many small-to-mid sized corporates accessing funding through the private market. Also, financial technology will play increasingly significant roles in supporting the growth of the industry in 2022. Beyond a largely payments-based fintech industry, we believe that other aspects of financial market infrastructure would witness some innovation. We believe that the rapidly evolving blockchain technology would be a major disruptor of securities markets including that of Nigeria; affecting operating costs, firm relevance, and scaling the scope of securities that could be covered by custodial services. While it is possible that among other benefits, it could expand the universe of accessible assets, the range of investors, and diminish the minimum amounts required for investor participation, there would be a need to match this with regulatory requirements.

“Due to stringent requirements many prospective issuers are unable to access funding through the markets. Inability to adequately price risk, inaccessibility of credit profiles constitute a major challenge to retail access to credit. DLM seeks to intermediate in this space through the issuance of its debut CP programme.