Daily Independent (Lagos)
Sola Alabadan
18 November 2008
National Pension Commission (PenCom) says only five credit rating agencies have been approved by the Securities and Exchange Commission to determine instruments in which pension funds can be invested.
According to the Director General of PenCom, Muhammad Ahmad, the rating agencies approved by SEC are Agusto and Co, Global Credit Rating, Pharez Limited, Brickfield Road Associates Limited and Datapro Limited. This means that only these five rating agencies recognised by the commission are eligible to rate instruments in which pension funds can be invested.
Credit rating agencies play very important roles in determining how pension funds can be invested and PenCom is required to provide the list of the recognised rating companies at regular intervals. All ratings shall are to be undertaken by rating companies registered by SEC under the Investment and Securities Act 1999.
Under the quality of shares, bonds and other securities, the regulations on the investment of pension funds, provides that all debt instruments in which pension fund assets are invested must have a minimum investment grade level rating of "BBB" by, at least, one recognised risk rating company.
Any bank/discount house in whose money market instruments, pension fund assets are invested, shall have a minimum corporate rating of "A" range by, at least, one recognised risk rating company.
Any company/issuer in whose ordinary shares pension fund Assets are invested shall have a minimum corporate rating of "BBB" by at least one recognised risk rating company.
For any debt instrument proposed for listing on the floors of any recognised SEC through an initial public offer to enjoy pension fund investment, it shall have a minimum acceptable rating of "A" range by at least, one recognised risk rating company.
Pension fund assets can be invested in the certificate of deposits and bankers' acceptances issued by a licensed discount house on its own behalf provided such a discount house shall maintain a minimum corporate rating of "A" range.
Concerning the investment limits and performance benchmarks, the guidelines on the investment of pensions funds state that the pension fund assets can be invested in bonds and other securities issued by the Federal Government of Nigeria without any limitation.
However, up to five per cent of pension fund assets can be invested in eligible bonds/debt instrument issued by any one state government, subject to the limit of three per cent of the issue for a bond with risk rating of "BBB"; four per cent of the issue for a bond with risk rating of "A"; and five per cent of the issue for a bond with risk rating of "AA" and above.
Up to five per cent of pension fund assets can be invested in eligible bonds, REITs, MBS, ABS and debentures of any corporate entity, subject to the limit of three per cent of the issue for such debt instrument with risk rating of "BBB"; 4 per cent of the issue for such debt instrument with risk rating of "A"; and 5 per cent of the issue for such debt instrument with risk rating of "AA" and above.
Pension fund assets managed by a PFA can be invested in certificates of deposit and bankers acceptances of any one bank issued on its own behalf and traded on a money market electronic platform open to the public and approved by the CBN or Money Market Association of Nigeria, subject to the limit of 3 per cent for a bank with risk rating of "A"; 4 per cent for a bank with risk rating of "AA"; and 5 per cent for a bank with risk rating of "AAA".
Pension fund assets managed by a PFA can be invested in ordinary shares of any one company quoted on the Nigerian Stock Exchange (NSE), subject to a limit of two per cent of the total pension assets for a company/issuer with a corporate rating of "BBB"; three per cent for a corporate rating of "A"; and four percent for a corporate rating of "AA" and above.
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