Financing acquisition of assets using Digital Ledger Technology (DLT)

Background

Financing acquisition of assets needed to increase production or produce new products can be challenging in an era in which the traditional investor forum are holding onto what they have with a wait and see approach to opportunities, and internal funding is stretched. Unfortunately departments that need to acquire these assets cannot afford a wait and see approach.

Our Approach

Corporates need to rethink their traditional approach to funding asset acquisition and in the process review their traditional sources and means of funding asset acquisition. We at MLS believe that corporates need to begin to consider funding from investors that are Distributed Ledger Technology (DLT) savvy. These investors are experienced at viewing assets not as part of operations but as distinct assets capable of being monetised as standalone assets once digitised or as sometimes also referred “tokenised”.

These new breed of investors that have taken a shine to investing in what are referred to as NFTs (non-fungible tokens) have been born and reared in the era of crowdfunding sites such as indiegogo or kickstarter where persons or corporates seeking to fund their projects showcase the opportunity on a private or public url for investors to peruse and purchase a stake in the opportunity even before it materialises and with no intermediaries. Because they were groomed in this era they comfortable looking outside the traditional fund space. NFTs have taken funding of the acquisition of digitised assets to a different level for corporates seeking to raise funds for the acquisition of assets to be used within their operations.

With NFT’s, corporates can seek funding for assets they seek to acquire as distinct standalone assets from the rest of their operational assets though they will be interoperable. This is especially possible wherein these assets can be monetised and are technology based with the ability to be monitored using the internet of things (iOT). Such iOT based infrastructure lend themselves appropriately for being monitored and monitised.    

The Process

These assets are digitised, not interchangeable and given a distinct identity which is in-corruptible, using smart contracts thus making them a Non fungible token (NFT). Using smart contracts again, fungible tokens are generated which will serve as the means of acquiring interest in the NFT based asset. The fungible tokens are exchangeable,uniform and divisible.     

Case Study

Here is an interesting use case scenario involving an energy company deploying downstream infrastructure to serve a new market. The new infrastructure will integrate with the old upstream platform. Funding for the new infrastructure can be monitored using iOT. Having digitised the intended assets to be acquired as NFTs, fungible tokens are offered to investors interested in the business case behind the intended asset acquisition. Inevitable a due diligence room is available for the investors to conduct their study of the business case. Investors exchange fiat currency (such as Naira, US Dollars or Pounds Sterling) at the given exchange rate on the distributed ledger exchange. The investors are free to trade their fungible tokens in the asset on the same distributed ledger exchange.

Development of a White Paper for an ICO

MLS by Oladipo Opanubi has just concluded developing a whitepaper for an ICO. You might question what a white paper is and also an ICO. Lets kick off with the ICO. As explained in yesterdays article an ICO is an Initial Coin Offering very similar to an IPO. For more on that please see yesterdays article. A white paper is a precursor to an ICO and is used in the same way a prospectus is used in a traditional IPO. According to https://cointelegraph.com/ a white paper is: ” … a document which includes an outline of a problem that the project is looking to solve, the solution to that problem as well as a detailed description of their product, its architecture and its interaction with users.” Potential subscribers to the ICO are greeted with a white paper and the success of an ICO is largely determined by the drafting of the white paper.

You can pretty much guess what needs to occur ahead of the white paper being drafted. A comprehensive due diligence of course. The success of pin pointing what a subscriber requires to see to make an informed decision on if to subscribe to the ICO depends upon if the data in the white paper is verifiable? Hence its important that the due diligence be a deep dive due diligence. At MLS we would do our own AI based due diligence ahead of developing the white paper and thereafter use same process to create an exchange in a sell-side structured VDR (virtual data room) for the subscriber to do their own due diligence. So we have two due diligence exercises, the first for developing the white paper and the second for the subscriber to the ICO. Everything in the exchange of the whitepaper must align with what is in the VDR otherwise it begins to raise doubts about the opportunity in question.

Another part of the due diligence process that is critical is KYC on subscribers.

… the pseudo-anonymous nature of token offerings (ie ICOs) makes it technically impossible to determine a subscribers real identity. The only transparent feature known about the investors is their wallet address, i.e., the combination of numbers and letters that subscribers use to send and receive tokens. Although token transfers can be reconstructed using the information stored on blockchains, they never reveal the true identity. Hence, the term “pseudo-anonymous.” - https://cointelegraph.com/

Verification of investor identities via KYC (know your customer) or whitelist registrations builds confidence in the eco-system of coin offerings. Potential investors provide personal data (e.g., photo IDs and email addresses), undergo approval processes, and explain their intention to buy the token in question in a short.

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MLS (Managed Legal Services) by Oladipo Opanubi specialises in Due Diligence for M&A and Financing transactions. We utilise technology such as VDRs, AI, and Deep Dive analytics to get the job done. Though we emerged from a Law Firm most of our resources are technologists supported by subject matter experts.

Tokenization as a pathway to Corporate Finance

The current economic landscape has placed several impediments in the way of funding operations and acquisitions. Understandably traditional investors are cautiously awaiting the storm to blow over before proceeding with pending opportunities. Financial intermediaries are responding to the conservativeness of their traditional source of funds and holding back with proceeding with transactions.

Despite this lack lustre approach to transactions, money is still seeking channels through which it can funnel itself to opportunities and these opportunities are still there. Corporates still have a need to acquire more infrastructure and in some cases acquire other corporates.  

There are a set of advisors that these seem to have little time or resources to take on new transactions. Once approached their response is we are booked up for the next couple of months. These are ICO advisors. These advisors appear to be where some monies have found a channel through which to meet opportunities. What is an ICO (initial coin offering)? An ICO is a listing of digital assets on a crypto exchange. Very much similar to the traditional IPO but decentralised, without any intermediaries, and relies upon social media type of infrastructure as a means to market the digitised securities.

Pretty much anything can be digitised or as I prefer to refer to it, tokenized. Once tokenized the former brick and mortar asset can now be listed on a crypto exchange. We come in at the phase of conducting the due diligence on the brick and mortar asset or opportunity which is necessary to identify its value ahead of tokenization and subsequent listing at a particular price per token on the exchange.

Corporates can explore this blossoming approach to crowd funding acquisition of assets or corporates seeing as both of the aforementioned can be digitised using tokenization. This particular approach lends itself well to assets or opportunities which can be monitored using iOT (internet of things). The following lend themselves to iOT infrastructure: a QSR (Quick Service Restaurant); an upstream LNG player providing domestic supply; a logistic company; an agriculture based production company and a property development firm. These are just five of thousands of operations that now lend themselves to iOT and hence to wooing funding via digitisation of their assets.

Regulators' core concern with this approach to corporate finance is the need for such transaction owners to do their KYC on investors and for such tokenized securities more importantly to be registered for monitoring purposes.

Please contact us if you would like some help exploring due diligence and drafting whitepapers for tokenization and ICO listing.

MLS (Managed Legal Services) by Oladipo Opanubi specialises in Due Diligence for M&A and Financing transactions. We utilise technology such as VDRs, AI, and Deep Dive analytics to get the job done. Though we emerged from a Law Firm most of our resources are technologists supported by subject matter experts.

The Labours of Heracles

[An article on technology used in dispensing the COVID-19 Intervention Fund]

 The ten (10) labours of Heracles which eventually became twelve (12) is well documented in Greek mythology. Heracles is better known as Hercules and his labours were challenges which involved, amongst many others, fighting monsters and beasts of different types. COVID 19 has created a range of challenges that seem to have no end. We like Heracles get use to a particular challenge and before we know it we are enveloped with a new set of challenges. Each challenge, like Heracles’ challenges, is endowed with not one but multiple monstrous heads.

Credit to individuals and corporates facing difficult times is a brilliant initiative and necessary step by governments of different countries. However issuing such credit creates monstrous challenges. Issuing credit required issuers to deal with the below-mentioned challenges:

• procuring data from applicants in the way of supporting documents to credit applications;

• secure storage of supporting documents submitted by applicants;

• due diligence on same supporting documents.

 These are just a few but necessary steps on the road to supporting these individuals and corporates. Lets take this challenge slightly further. Multiply the aforementioned by hundred of thousands of applicants, and to add further complexity create near impossible timelines to process same applications. Time is of essence seeing as the businesses have vendors and resources that keep the business afloat and need funding.

Most countries around the world are experiencing this multi-headed beast, and their weapon of choice in beheading this beast is technology and resources skilled in wielding this deadly weapon. First weapon of choice is a bank grade secure level cloud based platform with an easy to use user interface which applicants use to submit their supporting documents. It is essential that the applicants are guided in their submission by same platform. The object of the system is not to guaranty failure and difficulty but rather ensure all documents needed for effective analysis of applications are available. The Intralinks Document Repository is being used for this very purpose because of its easy to navigate user interface and tried and tested security system.

The second weapon of choice is machine learning artificial intelligence to aid auto review of supporting documents. Missing or expired or incorrect data in supporting documents are red lighted for reviewers to immediately set-aside whilst completed submissions are green lighted for reviewers to pass to the next level in the process. Intralinks DealVision artificial intelligence was specifically built with this in mind and makes the job of reviewers much easier and faster.

The final weapon of choice is a auto process flow system that manages the approval process. It also aids post transaction auditing. The Intralinks WorkFlow Tool is purpose built for managing the approval process as documents are moved from one phase in the process to another.

Heracles did not have these weapons when battling Hera’s many beasts but you do, so maybe you can dawdle through your Labours in record time.   

Story of Resilience and Fortitude

We are in the FMCG (fast moving consumer group) space . Business has been in the family for decades. Handed down from generation to generation. With plummeting sales, revenue is drying up and I do not see the light at the end of the tunnel. Now trade debts are mounting. Where do I turn to? Whats the next step?

I am more concerned for the hundreds of loyal staff that have dedicated their lives to this business and the many lives that their earnings go towards supporting. I have called the lawyers and financial advisors. They say there is a way out but time is of essence and we need to handle multiple tasks simultaneously. We need a helping hand.

Hundreds of clauses to review amongst hundreds of agreements. Your trying to save the company. On the face of the current terms of the agreements there is no way the company can cover all its growing liabilities. Maybe there is a way out of this. Just maybe if I am fast enough I can review and revise negotiate and revise those critical terms with hundreds of vendors/creditors. Just maybe. It all comes down to how quick I can be.

Considering speed of contract review is the immediate need, we will focus on that. Contract review platform with a subject matter expert (SME), Contract Reviewer and Technologist will do the trick. What would ordinarily take several weeks can now be done within a couple of days or less. The platform, once setup by the team, will be able to identify critical clauses for review and manage simultaneously the redraft and dissemination to the vendor/creditors. My lawyers can now handle the negotiation via the data room securely and separately with each creditor and I can track the the progress being made real-time via the dashboard.

Some matters have gone beyond redemption and there are pending litigation. However I need to analyse each matter and smartly apportion the time and resources. Enter an AI (artificial intelligence) based due diligence platform with a document reviewer expert that sets up the platform to scour through the pages loaded into the data room to identify which matters are high priority. It also scours for relevant cases that are relevant in producing a report for me and my lawyers. I and my lawyers are saved a great deal of time and human resources that are better apportioned elsewhere.

Which assets are unsecured and beyond the arm of creditors and which are available to be sold to help support continued operations or complete diversification. We need to be smart about this. Walk in “data analysis platform” with a technologist loading up the asset list and documents referring to assets that are charged/secured against debt. Its a complete asset due diligence with a difference because at least I know what I can and cannot touch. The lawyers find this report gives them peace of mind.I think I can make it. No! I take it back. I know I can make it.  

CARES Loan On-boarding Solution - for Nigerian Banks

Background

Federal Govt of Nigeria announced the below amongst others to assist the struggling economy

• N50 billion targeted credit scheme for households and small- and medium-sized enterprises that have been particularly hard hit, including but not limited to hoteliers, airline service providers, healthcare merchants, etc.;

• N100 billion credit support for the healthcare industry particularly pharmaceutical companies, hospitals and health practitioners, that want to start new or expand existing drug manufacturing or healthcare facilities;

• N1 trillion in loans to boost local manufacturing and production across critical sectors

Challenge

This is all wonderful news but now comes the heavy lifting.

• Dispensing of such loans is back breaking work

• Involves doing due diligence on the loan applicants

• Requires sifting through tonnes of applications

• Requires sorting and collating same applications

• Also requires measuring internal checklists with what documents applicants have submitted

• These are just some of the tasks awaiting commercial and merchant banks that shall experience the brunt of this heavy lifting

Solution

I suggest utilising a mix of the below technology based solutions. Remember, we want to avoid a large number of persons trouping into banks.

• Easy user interface for application submission

• Cloud based sharing and collaboration platform for centralised access to all loan applications

• Cloud storage must be a bank secure grade platform

• Workflows to manage the approval process

• Artificial Intelligence to handle the analysis of the loan applications