Bisi Ojediran and Sufuyan Ojeifo in Abuja
24 September 2008
Lagos — A move has been made for the review of the cumbersome bond approval process and documentation; tax exemptions; and implementation of a robust IT auctioning and trading platform to fully revitalise the Nigeria bond market.
These are part of wide-ranging recommendations of the Bond Market Steering Committee to the National Assembly towards the review of laws that tend to stifle the orderly development of the market. The recommendations are coming at a time when the resilience of the bond market is becoming all too evident as global financial markets battle to swim out of crisis.
Bonds are loan contracts which governments and private corporations issue to investors in order to raise long-term finance. A bond contract specifies the percentage interest to be paid and the due date for repayment of the principal. Bonds therefore pose low risk to investors.
Although there have been some notable transactions in the local bond market, among them the sale of bonds by the Federal Government to finance domestic debt, raising debt stocks by some state governments to finance key projects, and the floating of N500 billion bond by Transcorp Plc to assist the company to take off, the volume of transaction in the local market is an infinitesimal part of the global market valued at over $50 trillion.
The Bond Market Steering Committee (BMSC) inaugurated in 2006, is a consensus-building body comprising major public and private sector stakeholders in the bond market. Its key objective is to ensure speedy development of the market by driving the implementation of collective decisions, coordinating and harmonising the activities of all stakeholders, as well as determine the overall structure of the market, among other things.
In a meeting of the Technical Sub-Committee of the BMSC with the Senate Committee on the Capital Market last week, it expressed the need for government bonds to be exempted from income tax, capital gains tax and withholding tax because they are meant to "finance infrastructure developments and for other public good."
Similarly, it asked for corporate bonds to be exempted from income taxes for a period of 10 years in order to stimulate activities in the sector.
The committee's delegation, which was led by, Mrs. Patience Oniha, Director of Market Development of the Debt Management Office (DMO), also recommended that the Value Added Act 'expressly exempts all government securities and corporate bonds.'
Under the Companies and Allied Matters Act (CAMA), there is no provision for the formation and regulation of special purpose vehicles for securitisation issues. The committee recommended such provision in the securitisation law. It also wants stamp duty on re-issued debentures stopped or drastically reduced to encourage issuers
On legal and regulatory issues, the committee strongly recommended that the 'procedure for obtaining Governor's consent be simplified and stamp duties payable in respect of mortgages considerably reduced.'
Other recommendations include the expansion of bond issuance to cover debt refinancing or receivables; and mandatory issuance of bond certificates.
In his response, the Chairman of the Senate Committee Capital Market, Senator Ganiyu Solomon, told the delegation that his committee would study the recommendations and call for another meeting before the bills on the proposed legal reforms are formally presented to the Senate.
He said the Senate Committee was committed to the success of the bond market, and that it would facilitate opportunities for wider consultation with stakeholders on ways to further stimulate the sector in the interest of the nation.
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