Capital Market Development Authority (CMDA) announces they were preparing to introduce a formalized platform for private placements as a way of accessing finance.
Presently, there are three main ways to access finance for companies; bank loans, private placements and going public in a capital market.
CMDA noted that most companies in the country were now moving towards private placements to raise finances. CMDA pointed out that most private companies and some well-established public limited companies were using this approach.
‘Private placements are largely unregulated in Maldives and have immense room for customization and flexibility. It allows businesses to choose their own investors increasing the chances of having investors with similar objectives and means to provide business advice and assistance, as well as funding. It also allows the business to remain a private entity, rather than having to go public to raise finance and provide flexibility in the amount and type of funding. It requires less investment of both money and time than public share flotations and as a result, private placements are sometimes the only source of raising substantial capital for more risky ventures or new businesses,’ said CMDA.
CMDA noted that due to the lack of regulation, private placements were more prone to risk.
To counter the negative effects from a viable source of funding, CMDA announced that the body will recognize private placements and introduce a marginally regulated common platform. Such a platform, CMDA said, will allow buyers and sellers to come into one platform, eliminate middlemen and ultimately negate most of the drawbacks traditionally associated with a private placement.
‘It will enable easy access to capital, increase participation by institutional and private investors, encourage entry of new market participants such as investment banks, credit rating agencies, increase activity and healthy competition in the financial market ensuring greater contribution to the economy via accelerated business activities in the country,’ CMDA added.
The said framework will be launched in 2019. CMDA also said that they were in the process of developing a regulatory package for this.