In order to deepen the capital market and ensure financial stability in the country, there is the need to introduce asset-backed financing on a large scale, the Managing Partner, Perchstone and Graeys, Mr. Osaro Eghobamien, has said.

According to him, the introduction of asset-backed financing and, consequently, as asset-backed bonds, which have minimal risk, can prevent the current situation  where the Central Bank of Nigeria, in a bid to reduce liquidity in the economy, fixed interest rate on treasury bills between 11 and 12 per cent.

He said this, while speaking on the topic, ‘Legal issues on financing infrastructure through the capital market’ during the infrastructure roundtable organised by the Securities and Exchange Commission in Lagos.

Eghobamien, a Senior Advocate of Nigeria, explained that asset-backed financing involved raising debt capital against a specific portfolio of assets in a manner, which seeks to insulate the investor in the debt securities from risks other than the risk of the assets financed but not performing in the manner anticipated.

He added that this meant that repayment of the debt would be determined by the performance of the relevant assets of the transaction.

Eghobamien, who said the capital market had been identified as an appropriate platform for funding infrastructural projects, stressed that in countries such as the United Kingdom and the US, major projects had been primarily funded through the capital market using asset-backed financing.

He said considering that recent research had shown that about $15bn was required annually to fund Nigeria’s infrastructural deficit and the fact that the budget was unlikely to accommodate that in any given year, there was the need to adopt the same approach.

He, however, expressed concern that while there was a framework that allowed the purchase of non-performing assets (through the Asset Management Company of Nigeria), the framework to purchase performing assets had yet to be put in place.

He said, “In the AMCON structure, the Central Bank of Nigeria and the Ministry of Finance technically financed the purchase of the non-performing loans from the banks with the aid of AMCON.

“In a traditional structure, performing loans or assets will be sold to a special purpose vehicle. Ironically, there is now a solid framework for non-performing assets while there is no structure for performing assets.”

Source: Punch (by Simon Ejembi)