Origin, the fintech platform for issuers in the private placement market to distribute target funding terms to chosen dealer banks in the hope dealers can find an investor to match, has grown fast since its beta launch at the start of 2017.
Back then, Origin had six investment banks – BNP Paribas, DekaBank, Bank of America Merrill Lynch, Société Générale Corporate and Investment Banking, Credit Suisse and Daiwa – receiving terms from 22 international borrowers.
When Euromoney catches up this summer with chief executive Raja Palaniappan, who co-founded the business after leaving his derivatives dealing desk at Credit Suisse in 2015, Origin has grown to 15 dealer banks and 58 borrowers. These borrowers reflect the typical frequent issuers of small, targeted private placements, comprising 38 financial institutions, 17 supranationals and three corporate issuers.
The firm grew fast in Europe. Four of the top five Nordic dealers in private placements, for example, use Origin, and most of the region’s frequent issuers – but this is now a global business.
“We’ve seen great progress with clients, with borrowers from Europe, North America, South America, Africa and the Middle East now using Origin,” says Palaniappan.
Borrowers that have recently joined the platform – alongside early adopters such as the European Bank for Reconstruction and Development, the International Finance Corporation, Kommuninvest, Munifin and NWB Bank – include the Washington-based Inter-American Development Bank; CAF and Banco Santander Chile from Latin America; Mashreq Bank in the Middle East; the African Development Bank, as well as French agency issuer Unédic and Nationwide in the UK.
Palaniappan says: “We are also spending a lot of time in Asia, where we hope to attract their equivalents there. One of the largest dealers who recently joined is Mizuho, joining Daiwa and another Japanese bank.
“Also, in addition to BNP Paribas and Société Générale, who’ve been on board for a while, Crédit Agricole is set to join us soon. Interestingly for us, the head of the private placement business for Crédit Agricole sits in Hong Kong. That fits our most recent efforts.”
In Origin’s first year of operation, it saw 110 transactions originated that raised $4.5 billion in aggregate during 2017. In 2018, it had already passed that milestone before the first six months were up.
It has seen smaller dealers originate transactions with issuers that they had never traded with before. For example, DekaBank did its first trade with SpareBank 1 Nord-Norge in March 2017 after meeting on the platform, and has since followed up with a few more transactions during the past year.
Similarly, in March this year, SEB printed its first trade with Banque Internationale à Luxembourg, and has been able to follow up with a couple more since. ICICI Bank UK has been interested in using Origin to reach out to more dealers than its usual group, and in May executed two inaugural trades with Daiwa, one in US dollars and one in yen.
If you break capital markets workflows down into the pre-trade phase, deal execution and then post-trade processing, Origin, as the name implies, has attacked the private placement market from the first phase, with issuers posting target borrowing rates to dealers, so arming them with much more real-time information with which to attract potential investors.
Origin is now moving into the second phase, deal execution, and also looking at the start of post-trade processing.
“We are not a trading platform and don’t intend to become one,” says Palaniappan. “It will still require a phone call or a Bloomberg chat between dealer and issuer to progress from an indicated funding level to an actual transaction, typically with the dealer’s swap desk also on the line.”
That brings participants into the documentation-heavy and time-consuming parts of the new issue process, starting with drawing up a term sheet before agreeing a firm mandate.
“We have now built an automatic term-sheet generator, into which participants can quickly add the deal’s key financials – currency, coupon, maturity – and which the issuer sees in the system with a time-stamp,” Palaniappan explains.
“This replaces what can often be a lot of email exchanges, sometimes between an issuer and a dealer in a different time zones and avoids the drawing up of new term sheets each time, much of which comprise standard elements.”
This is just the start of the work-flow journey around a new issue that Origin is now trying to overhaul. In the normal course of events, the syndicate banker would notify the bank’s transaction management team of a mandate agreement and ask the legal department to draft a formal legal document.
This is all about bringing efficiency, saving time and resources of highly paid bankers and lawyers as well as reducing the risk of manual error- Raja Palaniappan, Origin
The legal department pulls up the base prospectus from the issuer’s MTN filings and the new term sheet, and constructs a six- or seven-page legal document for the deal. This can take several hours.
Origin is now trying to update the process.
Palaniappan says: “Every issuer has template final terms and 85% of what goes into that legal document will already sit in the automatically generated term sheet.
“There may still be 10 or so fields that only the legal department can fill in, but we now have a wizard that takes them to a portal where they can do that. Instead of hours, that now takes a few minutes.”
Palaniappan adds: “This is all about bringing efficiency, saving time and resources of highly paid bankers and lawyers as well as reducing the risk of manual error. Once the trade is done, you have the dealers and issuer’s middle-offices emailing PDFs to each other, and then ultimately to the paying agent, who then sends documents to the clearing system to generate an ISIN.
“At each institution, someone is opening the PDF and manually keying the final terms information into their system, leading to a huge risk of propagation of errors. The Financial Conduct Authority has fined banks for that.”
He says: “What we are now saying is: let’s have the syndicate desk generate the term sheet and the legal terms electronically from the outset. We can then open up APIs to all the other institutions and automatically send that information to their systems, eliminate errors and increase efficiency.”
Origin will be talking to market participants about this next phase of its offering over the summer and hopes to go live early next year, perhaps even before the end of 2018.
There is no gleaming blockchain here, but this is how financial technology will likely transform the capital raising process: in small incremental steps, each bringing efficiency add-ons rather than through some revolutionary new process.
If Origin’s new offering reduces trade execution and settlement times, then the private placement market – in which issuers would like to do more frequent mid-size deals sacrificing the promise of secondary market liquidity for the prize of more precise asset-liability management – could grow substantially.
The approach could also come to the public debt markets.
“Right now, we’re looking at bilateral transactions between an issuer and an investor put together by dealer banks,” says Palaniappan. “The next step is club deals in some of the smaller currency markets such as the Nordics and Australian dollars.
“And we’ve had dealers already looking at our term-sheet tool and asking if they could use it on public deals. It wouldn’t probably apply to multi-tranche benchmark transactions, but I don’t see why it could not work on public deals led by just one or two banks.”
There seems to be a lot of momentum behind Origin now at a time when banks and issuers are all fixated on wringing new efficiency form outdated business practices.
Just in case it’s not clear, Palaniappan reminds us: “Origin is a business, not a charity. We believe there’s a lot of value here and of course there will be a cost for using the automated final term-sheet tool. What that should be is something we are still discussing.”