Latest / Ghost Stories / Ghost Stories #115: Life after JIBAR - how Intengo simplifies the ZARONIA era

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Ghost Stories #115: Life after JIBAR - how Intengo simplifies the ZARONIA era · Ghost Stories

• 0:00
  Speaker A: Intango Market is a revolutionary independent digital marketplace for debt instruments in South Africa. Incubated by RMB in 2020 and having launched as a standalone business in 2024, the platform is growing to improve the market for all participants through outcomes like increased liquidity and price discovery. Get ready for great insights into the South African debt market. Welcome to this episode of the Ghost Stories podcast and today we will be learning a lot more about the complexity of debt in the corporate space and how, which is going to be really interesting. There's something out there called Zorronia. It sounds a bit like a town in a fantasy novel, but it's actually the South African Rand Overnight Index average. We're grateful here for the acronym, which is a little bit easier replaced. Jibart has a different calculation methodology, but it does mean that a lot of other stuff has changed too, and is changing in terms of how debt needs to be managed by companies and lenders. Now, to help us understand more about this very interesting world of actually managing debt, we've got Ian Norden here of Intango Market, day in and day out, and probably a few weekends as well, trying to figure out how to make this easier for companies in a complex debt environment. So, Ian, welcome back to the show. Not your first one. We've had Intango in ghost mail before. Lovely to have you and the team back. Why don't you kick us straight off, perhaps with an understanding of the sources of complexity, what actually makes this world so difficult?
• 1:28
  Speaker B: Hi guys. Yes, thanks. Good to be back. Lucky number three for me on the podcast series. I think debt in isolation in one loan agreement or one bank facility is probably not complex. We can get into Xoronia and the exact reasons it makes things more complex. But what becomes complex is the burden that comes with the accumulation of small recurring obligations. So think about you've got a loan or a bank facility or an overdraft, and then you want to learn, or then you want a revolving credit facility as well. Or then your banker comes and says, well, let's give you a guaranteed bank facility for longer term debt. All of these together, once they start adding up, become more complex. Now, as you've very eloquently summarized and explained what zironia is, the practical challenge of zoronia is because it's an actual rate, it looks back and says, what was the actual rate that banks transacted with each other yesterday? It makes it very practical, not theoretical, but it happens every single day. So if you historically had a loan that reset four times a year, say you had a floating interest rate loan, it would most often reference three months Java, and that would be four interest rates you'd have to capture. Now you have 365. You have to capture them, you have to store them, you have to be able to show a calculation to your shareholders or stakeholders if they ask for it. So you can see how that now compounds over multiple facilities very quickly.
• 2:47
  Speaker A: Very interesting, Ian. So Zoronia is certainly bringing a lot more complexity to this. As you say, lots of small recurring obligations and lots of interest rate calculations. And that all sounds like work. And on top of that you've got other complexity. Right? It's not just that, because, yes, that's just the rate, that's maybe what's changed. But underneath that is a whole lot of other things that have always been complex about debt. Right. Covenants, forex, all sorts of things.
• 3:11
  Speaker B: Good points, spot on as usual. We haven't even touched on that. So you've got the hedging complexity. So again, just the availability of Zoronia hedges is going to be an interesting transition. As we see more and more Zoronia instruments being issued in the capital markets, hedges will become better priced and more available. But then again, the complexity of sourcing them is half the challenge. Now you've got to manage those hedges and then you've got covenant certificates. So you've got to track different covenants across multiple facilities. I think we're talking more in general now about the complexity of debt, not just Sironia, because these have always been there, but when you add these extra things and you say, I've got to now be focusing on sourcing the correct rate, you don't want to be worrying about sending the wrong covenant certificate to the wrong party or sending a covenant certificate late. And you know, these aren't breaches to send a certificate late, but it certainly creates friction and it doesn't paint you in a good light with your lender. Then you're adding cross currency. Maybe you've got some foreign currency revenue you've got to look at. Do you have reliable FX feeds? Do you have reliable cross currency swap hedges? Do you have the most accurate up to date hedging available to you so that you know you've got best execution? As you can see, if you've got a large list of top 40, this is much more easily managed by a large, sophisticated team. But if you're a company that's grown up and you still have a relatively lean or no treasury team, maybe you've just got a finance manager or a finance Director. This can become very, very intensive very quickly.
• 4:33
  Speaker A: Okay, so lots of complexity there. That's the message. And as you say, not always easy, particularly for finance teams to deal with this kind of stuff, even in big corporates actually, let alone in your mid sized corporates, where there's even more of a burden relative to the size of the thing. And you know, we can talk about that as well. But there's an opportunity, obviously, and this is where you come in at Nintendo, which is to provide solutions into this space. But what is the real world cost of not looking at those solutions, not solving for the complexity, having an inefficient relationship with lenders, for example, or, or even worse, outright governance failures, which we see less often in the private sector than in the public sector in South Africa. But there's a real cost with this stuff, right? It actually costs you money if you are not managing this debt properly.
• 5:16
  Speaker B: Yes, we must remember that markets price risk. So credit risk is certainly a big component of lending. But there are other risks at play and we are talking here about operational risk. As I mentioned earlier, the light covenant isn't a breach, but I've been in conversations with bankers where it does create a headache because that bank has got to go back to credit and explain that it wasn't a breach and it was just a lapse in admin. So that then leaves a bit of a bad taste in credit's mouth. And maybe next time that banker goes to credit with that deal, there's a history there or a memory from the credit team around. Well, we could lend to this counter, but they're not the most admin friendly for us. So you've got to think of that dynamic. And then, I mean, we can look at the municipalities in South Africa over the last few years, how poor governance can really turn you off lending completely. And I think we're seeing that still with misappropriation. And we won't get into who's who, but it's probably the most public example of how poor governance can ultimately lead to no lending coming to you.
• 6:16
  Speaker A: So Ian, you've mentioned there that markets price risk. It's such a powerful statement because that's exactly how financial markets work. At the end of the day, everything we do is just the pricing of risk versus return. And in the world of debt, your return inevitably is relatively capped. Sometimes things might be participating instruments or whatever. But generally speaking, lenders are managing downside risk, whereas equity investors are thinking about the upside potential. So it stands to reason that if you are dealing with lenders they will care a lot about how you manage your risk. And is it even something we can say that doing this properly and actually having these systems in place and everything else, can that reduce your cost of funding? Can it have a real cost benefit if you are perceived as being a better quality borrower by the lenders on the other side of the table?
• 7:04
  Speaker B: I think we must start with the fact that better governance and better admin in your treasury team or your finance department doesn't reduce the credit risk of your company. The answer maybe everyone wants to hear is yes, definitely improve your admin and you'll get cheaper funding. But I think let's look at the knock on effects. If you are a borrower and you've previously been maybe turned off by the potential complexity of accessing capital markets because you think there's now going to be an influx of debt instruments and you're struggling with or you're already managing your small portfolio, an automated AI admin system can significantly help you overcome that insecurity, if you want to call it that. So now you've got the confidence to access new markets and what that does is it leads to improved competition and diversity of funding. And those two factors we've seen can reduce the cost of borrowing, again depending on the name and the creditworthiness. But all else equal, increased competition should bring down the price of something. And that's certainly a big benefit of having strong governance and strong automation in your treasury debt management.
• 8:09
  Speaker A: And something you've raised with me before is this gap between perceived complexity versus actual complexity. And I know that this is part of where you are operate with your concierge offering and just helping corporates actually realize that as much as this sounds difficult and scary and I think especially mid sized because obviously your big corporate treasury teams, yes they're looking for efficiencies, but it's they understand debt markets. They're in there already. There are a lot of mid sized corporates that are probably not really accessing debt markets the way they could. Maybe they have one historical banking relationship, one term loan and they've never really paid much attention to whether or not they can actually optimize that part of their balance sheet. So perhaps just help us understand how Intango's concierge offering and all your broader solutions actually really help to plug this gap. Because I think that's what CFOs and treasurers want to understand is why should they be speaking to you? Why should they be getting this?
• 9:01
  Speaker B: We see our role as taking a lot of the heavy lifting away from you. But we also see our role as becoming a bit of an AI partner. Let's not say advisor, let's say partner, because you might be able to go to your co pilot on Excel and say, right, work out how much debt I owe you. But in our experience, and I'm going to talk specifically to AI, because a big part of our solution is AI driven. A big part of AI is the reliability of the data underlying it. So if you're not receiving credible data, so we have a direct feed from the Reserve bank for a daily 0 rate and that is the rate. So we know it's real and we know it's correct and we manage that sourcing risk for you. Because you as a treasurer want to be making strategic decisions. You don't want to be spending all your time on operational complexity and trying to check your rates. You know, imagine a world where, what if your ERP doesn't reconcile with your bank account and doesn't reconcile with your feed? How do you know which day in that 90 day period was the rate that was rounded to half a decimal incorrectly? So you can see how this complexity might sound simple, oh, I've just got to get a rate and work it out. But the knock on effects can become very real very quickly and very complex to solve without the right tool. And then if we move that to the second part of debt management, like covenant reporting and tracking or hedging, we can bring in a different way to manage your hedging risk, for example, by doing those valuations for you in the same system where your debt and interest rates are being calculated and in the same system where we have FX feed. So another part of our role is to consolidate your information. You mentioned the larger companies with the larger treasury teams. Yes, they have their handle on the admin, but they still have multiple systems. And I think what AI is doing at the moment is creating a huge amount of tech for a treasurer to now navigate. So what intango concierge tries to do is create almost a front end dashboard. Now we can sit in front of a Treasury management system. We aren't directly a TMS or we can sit behind one, but our goal is not to create extra screens, it's to consolidate with the reliable feeds and a reliable database. And the last part is then the scale of AI automation is covered by us and the cost of that is managed by us. So using Copilot in Excel is great, but our AI model that reads loan agreements is 14 different agents talking to one another. And it's really about the edge cases. It's about what if my covenant is worded slightly different to the one that Microsoft or another company thought might be how covenants are drafted. And our team has spent a lot of time with a lot of diverse corporates, from small, medium to large, understanding those edge cases. So you can trust that system a lot better and you're not spending the opex on it. And you also have a person to talk to because we haven't talked about human intervention yet, but we spend a lot of time thinking about when should the human come in. And equally you have us as humans on the other side to talk to if things do go wrong.
• 11:46
  Speaker A: Yeah. And having been in a financial services environment where I, for my sins, early in my career, was very involved in a systems implementation that didn't go as smoothly as perhaps it should have, and seeing how tough those recons are and how difficult it is to go and figure out an issue, it sounds ridiculous to people who aren't involved in this space. It's like just go and you know, sell C12 in your spreadsheet. What's the problem? Just go plug it in. That is not how these organizations work. And these treasury management systems, as you say, it is not that straightforward. So that is a very good point. I like what you said there as well about the AI models that have been trained specifically for the edge cases, because as anyone who has engaged with AI will know, and really that should be everyone by now, you should at least be playing with it. It hallucinates at every opportunity if you use the typical free models or you don't actually use the right thing and you haven't trained it properly. And hallucinating a small fact is already bad enough, but hallucinating a rate or a covenant or something else is not going to endear you to the credit committee at your friendly local lender who will be debating how to price your loan. So all of this makes a lot of sense. And let's make this practical now, without actually naming any clients. Are there any examples that you can perhaps give us of a business you've worked with, the types of problems they were facing before you became involved there from an intango perspective?
• 13:04
  Speaker B: Absolutely. I think there's a very real and recent one. We worked with an established corporate who's still growing and very reliant on debt, and we saw their spreadsheet that they were using for managing the interest payments alone and it was an impressive spreadsheet, but it was probably 15 to 20 tabs of different facilities across multiple banks. And I think it's important to say nothing was broken and there weren't any defaults or breaches, but you could just see how fragmented the administration had become over time because whilst interest was in this sheet, you had covenant tracking somewhere else and you had lender communication, often through email or phone calls. And then key dates were reliant on someone putting that into an Outlook calendar or just remembering them and taking note to them. So I think the challenge here for that client isn't credit risk. They're highly credit worthy and they weren't in default or missing payments or covenants. But the operational complexity just increases the risk of that maybe happening. So it was great for us because it really proved the value of consolidation. So putting this all into a single environment, having our AI readers come in, process the agreements, pull out all the information into one place, but then have one system that can monitor the calculations, audit those calculations and provide the covenant certificates automatically and provide a ready to send email or even send that email. That provides much better visibility to management and I think much more peace of mind to management. One extra very interesting point was that the benefit wasn't limited to the borrower here. The banker who introduced us, one of the bankers that obviously had many banking relationships, but the banker who introduced us, he received very positive feedback from the client because their interactions were now smoother. The reporting was not reliant on the manual process, it was much more consistent and they were spending less time doing that. So I think that's something to also highlight. Good governance for a Treasury isn't just creating value for their funding process, it's creating value across the whole funding ecosystem.
• 14:58
  Speaker A: Ian, when I hear you speak about a spreadsheet like that, I just immediately think about risk. So as you say, it's not like they were in default or they weren't meeting covenants or that something was particularly broken or there was a calculation error. But what if someone just sends that spreadsheet to one of their lenders and then reveals the pricing they get on everything to basically everyone? Or if it falls into the wrong hands or it gets into a competitor. I mean, these are extreme examples, but this stuff does happen. I think there was a recent story actually of an international investment bank leaking its entire pipeline basically out into the market because it was all sitting on a spreadsheet. So I would imagine that part of the intango value add is to actually have a system that allows for things like proper access control, where you can't just attach the wrong file to an email and suddenly you've shared a whole lot of personal information or business information with the wrong person.
• 15:45
  Speaker B: Yeah, that's a very fair comment. I think to your point, the stakes do happen and obviously this could be quite catastrophic for your funding book if you told everyone what you were paying to everyone else. And that's very much where we play a part. We are owned by a very large banking group at Intango and we inherit a lot of incredibly robust security in our systems and our software and that is a direct pass through to the client. So while a lot of the software we're providing is through a cloud service, I think it does add an extra layer of security that there's not a file that's not floating around, it's a system and it's secured. The other nice thing about how we implement is we rely on the existing controls. So if your company has a multi factor system or generally we use the Microsoft front end. So if you're using Microsoft software already, the login becomes seamless. It's not another password you have to remember. So it's a very easy implementation and it inherits any existing protocols your company needs to use software.
• 16:40
  Speaker A: So Ian, you've given us some really good examples around administrative improvements, governance improvements, risk improvements for that matter. But Intango isn't just a debt management business because part of the value add here is that your solution often helps clients actually access funding. So it's not just about managing it once it's there, it's about making it easier to bring that funding in. And as we know, funding is the lifeblood of any business really in whatever form it comes. So perhaps just walk us through how Intango has actually helped clients and generally helps clients get lenders across the line and bring them to the party.
• 17:15
  Speaker B: I think that's where the story becomes interesting because when you look at one solution in a vacuum, it can obviously do a certain amount of good and make a certain amount of improvements, but when you combine it into an ecosystem you can really start seeing multiply effects. So if we go back to Ntengo's history, our bread and butter is facilitating listed bond auctions and commercial paper fundraisers. And I think we're coming up for 450 billion rand now of bids processed through that system. And when we look at the market we say, well what is stopping mid sized corporates from tapping into that? And we've got asset managers on our system who are saying to us, oh I'd like to lend to that name. Do you know that name? And we'll know that name and we'll approach that corporate and they will be hesitant because I'd almost call it the fear of the unknown. What is that lender going to expect from me? What are they going to want me to provide? That's different. And what is the operational burden that I'm going to take on for the relative or perceived improvement in cost of funding? If we can make that admin the same, then it's a straight pass through of an improved funding rate. If that lender were to offer an improved funding rate. But in most cases they offer a diverse approach to funding and we have seen that sometimes funding rates can be improved. So we need to be thinking what does that mid cap need from us to tap into that? And the thought of multiple lenders, multiple debt instruments, covenant obligations is not scary anymore. When you've got an automated system that can scale and really improve your access to multiple funders with minimal operational increase. Access I think is then only one part of the puzzle. So the concierge solution is really designed to be your lifecycle partner. So it's not just the admin of accessing that funding, it's then the access of servicing that funding in the same way that you're familiar with servicing your bank funding and business as usual can be your focus. So instead of hiring additional treasury specialists and increasing headcount and buying multiple systems and building complex internal processes with new governance, a finance team can now leverage technology and automation to achieve an almost identical outcome, but in a much more cost effective way without increasing risk. And I think the result is Nintendo doesn't magically make you a better credit, but we certainly make it easier to access a wider funding ecosystem and increased competition for funding can often lead to better outcomes for borrowers.
• 19:33
  Speaker A: It sounds like you're carrying a lot of the hard work around the feeds. The AI that's been built, the understanding of the complexities of these things, it sounds like it would save a lot of time for someone on the other side at a client. And is that the idea here in terms of how Intango justifies its existence in these corporates and why it makes economic sense?
• 19:54
  Speaker B: We certainly think so. I'm going to jump on something you said around using the AI in the business. And we see a lot of corporates afraid to start with AI because of that question you've touched on. How do you explain to people that you're using it? And there was a very interesting article on Moneyweb this weekend around AI is now in the boardroom and why I want to bring that up is because we must differentiate between AI doing everything and AI supporting humans in their day to day. Why this is important is because we're not going to build a system for you or anyone that's going to work out the interest and send that payment directly through your bank account to those people. We're going to build a system that does a calculation, presents it to you at the right time and lets you apply your judgment. Because treasurers will intuitively have a sense of, oh, this looks wrong, or I've done this so many times, this isn't right. Yes, we've talked about them. I don't know exactly which cell, if it was C12 or B12 was the error, but we want to bring that human experience in and in our experience of bringing AI technology and automation to companies. It also lands a lot easier when you say, here's how your team can use AI to support their roles. We're not replacing anyone, no one's getting fired. However, maybe your next hire you don't have to make because your team has operational leverage now.
• 21:11
  Speaker A: I guess that leads me then to I suppose a cheeky question which is, does this product then pay for itself?
• 21:19
  Speaker B: So guys, with that context, we have to look at value, not cost. And you know, let's talk about the value of this to your organization. We obviously want to look at what is the replacement. So often it's a full time employee or FTE cost and we certainly try to be a fraction of that. Now those hires can also vary depending on the skill involved. But we look at it and say if you've got a relatively straightforward treasury operation, the fee will be relatively good value for what it is. And then there are add ons. So if you want to add a derivative package onto that or an FX feed package, we have seen certain corporates paying a lot for just FX feeds from a particular system. We can incorporate that as an extra cost, very, very cost effectively. And as you can see, you can start building this up and you add, okay, I've got less than five debt instruments. Then you're in our essentials package range or you're in our enterprise package range where maybe what we haven't talked about is portfolio lenders. So maybe you're actually looking at this tool to manage your investment portfolio and people who owe you money. Then we have a different model. So you can see it's quite diverse in client type and the value for money, I think scales proportionately.
• 22:28
  Speaker A: Yeah, absolutely. So if you are a corporate treasurer or CFO and you've been listening to this and thinking that's interesting or for that matter any exec in a mid sized corporate that has debt or looking to break into that market, looking to perhaps improve your cost of funding and just create some competitive tension among lenders and actually just improve the way you deal with this stuff, then all of these are good reasons to contact Ian and have a conversation. And perhaps Ian, as we start to bring this to a close, it's a connected ecosystem, right? That's the point here. You've got the banks lending, you've got the borrowers and you've got other service providers who can be involved in that value chain like in Tango Market. That's really what we're talking about here. To understand that ecosystem and to understand the role you play, what is the one thing that you would want a treasurer or a CFO or an executive to take away from this discussion when they think about Ntengo and specifically when they consider reaching out to set up a chat?
• 23:22
  Speaker B: Sure. Only one. I can immediately hear my whole team in my head shouting at me.
• 23:27
  Speaker A: I mean, I'll give you two.
• 23:28
  Speaker B: I think you've touched on the first point. The ecosystem matters. So we're going to pull back, right, to a global trend. You know, there's a shift in capital allocation from public to private. Are you as a company benefiting from that? There is more liquidity than ever outside of the banks looking for a home in your company. Those investors are going to want a certain standard for that capital to make it to you. Are you able to provide that standard? That would be the first one. I think the second one would be linked to that. It's much easier to get there than you think. And with the right partner, with the right tech and with the right use of AI. AI and tech and digitization is a very, very powerful lever into this space like it is with most things. But if you haven't yet thought about it in your debt space, now is a great time.
• 24:19
  Speaker A: So Ian, thank you so much for sharing all of this with us. And for anyone listening to this conversation who thinks there's an opportunity here to chat to them, go to intangomarket.com you'll be speaking to the right people because might I point out that Intango has been recognized as a finalist in the Fintech association of South Africa awards for Innovation of the year. Very cool. Well done, Ian. And to all the team members on that side, obviously it's certainly not just you. It's very cool to see this kind of growth. So thank you for coming and sharing more about the offering. It's developing really quickly, so by the time we get to our subsequent podcast in a few months time and some articles along the way for those who read Ghostmail, it's going to be quite interesting to see how this develops and the conversations you're having in the market. So thank you Ian and to the listeners, reach out chat to Intengo. I'll make sure that the details are in the show notes.
• 25:06
  Speaker B: Thanks Kirsten.