An investment bank called Exotix

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Edward Russell-Walling wrote in The Banker about an investment bank called Exotix, which y tackles the Yemeni frontier for investment, you can find the entire text here:

What is remarkable on this article from an Islamic finance perspective? A few issues:

1. It shows how investment banks can operate in emerging or so-called frontier markets:

"Exotix specialises in what are known these days as ‘frontier’ markets, particularly in Africa, in generally off-limits jurisdictions such as Cuba and North Korea, in the wilder corners of Latin America (which these days includes Argentina) and the Balkans. It began in 1999 as a distressed debt specialist and has been putting the knowledge gleaned from that exacting trade to wider use."

2. The frontier market attract more foreign investment and new entities are being set up:

"Since 2005, Exotix has developed an equity platform. “This is a one-stop shop, substantially a stockbroking business, for international investors looking to invest in sub-Saharan Africa,” explains Exotix CEO Peter Bartlett.

The newest venture is Insparo Asset Management, which hopes to launch in March. One-third owned by Exotix, one-third by its own staff and one-third by a US seed investor, this will invest in sub-Saharan Africa and other frontier markets. Unusually, Insparo will invest across all asset classes instead of specialising only in equity or debt."

3. Capital can be raised even for small and medium companies:

"The final activity, and the one that concerns us here, is structured products and origination. This means raising capital for small to medium-sized companies in emerging markets – companies which typically find it hard to raise funds. Exotix was placement agent for Ghana Telecom’s recent $200m issue, placing the majority itself. It also raised $89m for Ghana’s National Investment Bank in two separate placings and another E80m for the government of the fragile Ivory Coast. The firm’s recent Yemeni deal takes it into new and equally challenging territory.

Head of origination and structured finance Alon Caspi points out that the frontier markets’ corporate sector is beyond the radar of the big investment banks."

4. Aggressive investors can be risk-takers for entrepreneurial activity, not just for trading stocks:

“This was a classic opening for us,” Mr Caspi observes. “We said we could put together a deal using a lot of traditional project finance mechanics, but making it more interesting and imaginative to attract the more aggressive investment community of hedge funds and specialist emerging markets fund managers.”

5. Financial Engineering can expand the number of transactions being done in the real world:

"It all boiled down to a matter of risk and return. While project financiers try to strip away as much risk as possible, more adventurous investors are happy to take on the risk, providing they feel adequately rewarded. The challenge was how to generate those returns in a way acceptable to both sides of the transaction.
It came up with the Zippo. The tradable ‘zinc-indexed price payment obligation’ is the first instrument of its kind in the metals sector. It pays 16% of the difference between a floor of $1300 a ton and the average international zinc price. In other words, for every dollar that zinc trades above $1300, investors receive 16 cents for every ton that Jabal Salab produces.

“The added revenue is shared pro rata by the investors, so they share in the success of the mine,” says Mr Caspi. “The floor makes sure that the company is not paying out if it is getting close to breaking even.” The Zippo and the loan are split into two notes so that they can be traded separately.

6. Islamic financial engineering

This was not applied here, but it shows interesting insides about how far Islamic banking could go to achieve an end. A lot of inspiration to work upon.

Read the full article!