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Nigerian market to benefit from MESA

Anna Lyudvig
April 9, 2018, 6 a.m.

Word count: 823

Milost Global in partnership with Japaul Oil & Maritime Services, Resort Savings and Loans, Femab Properties and Primewaterview Holdings has offered a combination of debt and equity facility to the Nigerian market. 

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Milost Global in partnership with Japaul Oil & Maritime Services, Resort Savings and Loans, Femab Properties and Primewaterview Holdings has offered a combination of debt and equity facility to the Nigerian market. 

The new facility, entitled the Milost Equity Subscription Agreement (MESA), is a global investment instrument that was designed by Mandla J. Gwadiso from 2009 until 2014. 

The MESA is aimed at funding undervalued publicly quoted companies all around the world. 

Kim Freeman, Managing Partner & CEO of Milost, said: “Nigeria has the largest economy in Africa that is growing rapidly and Milost wants to be instrumental in sustaining this growth. Our MESA fund is an innovative facility that allows a company to not only reach its true market value but also to achieve its vision of a larger more vertically diversified company through acquisitions and organic growth.”

The instrument strategically targets companies that trade at a minimum of 50% discount to their intrinsic value. 

The instrument invests at a premium of 50% to market and pegs the performance of the stock over a period of 90 business days. 

If the stock doesn’t hit the high agreed at the set time frame, the difference is defrayed in extra stock. 

Take for instance, if the stock is trading at $1 per share in a 5 VWAP, the MESA would buy the stock at $1.50 per share and peg the performance thereof over 90 days. 

In 90 days, the MESA would look at the performance thereof over such period, if the stock trades at or above the $1.50 premium price at which the investor had purchased the stock, there would be no extra shares issued to the investor and if the stock price performed poorly and had not reached the purchase price then the difference between the 5 day VWAP of $1 and the premium purchase price of $1.50 would be paid by the Company to the investor in extra stock.

If the stock failed to reach the premium purchase price, the Company would also pay a penalty of 10 to 20% discount to the 5 day VWAP for failing to reach the high agreed price at which the investor had purchased the stock. 

The MESA is a growth instrument that creates and builds confidence in the stock of the companies in which it invests, as it invests at 50% premium to the market. 

Since the MESA is a funding facility, the companies can’t draw down the entire committed capital in one tranche. 

The MESA is a 3 to 5-year facility that a Company can draw down against from time to time over such period. 

The Company decides how much and when to draw down, thereby allowing the company the flexibility to draw down equity when the stock price is favourable to the Company so as to ensure a well-managed structure of dilution of current shareholders for each equity draw down. 

Equity draw down proceeds are used strictly for working capital, whereas note draw down proceeds are strictly used to fund growth through acquisitions of cash-flow positive assets or organic growth. 
At no time during the term of the MESA can a Company draw down more than 51% of its market capitalization and the draw downs are not tied to stock liquidity as Milost is a growth investor that only exits after 7 to 9 years after the time of investment. 

The MESA is one of the most effective investment instruments because it causes the market to correct the valuation of the stock in sync with the Company’s intrinsic value. 

Unlike other instruments that are mostly used by hedge funds, the MESA is value instrument that is designed to only exit investments after 7 to 9 years from the time of investment.

Solly S. Asibey, Senior Partner & CIO of Milost, added “The ingenuity and financial engineering behind our Milost Equity Subscription Fund, as well as the Milost structure of engagement makes it easy for us to invest heavily in companies with high growth potential, whilst reducing our risk of investments through the checks and balances that are part and parcel of our framework of engagement.”

“Our aim is to make investments in companies that will have a high impact within the vertical industry in which they operate, thus increasing the potential for the companies to be counted amongst the best in their industries globally. Our modus operandi has always been to invest in companies that will add value to the country and its citizens in terms of wealth and job creation, as well as the ability to contribute positively towards stepping up the economic transformation of the country. Our success is intertwined with the success of our investee companies; and from a corporate governance perspective, we subscribe to the rules and regulations of the Stock Exchange, Federal Reserve bank, and the SEC in terms of all our engagements.”

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