The current economic
meltdown in the Nigerian business environment has necessitated that the
Government and Companies diversify their sources of raising funds. A viable
means of raising funds is through the issuance of Government or Corporate

In recent times, the
Nigerian Bond market has experienced a low turnout of investment and even
withdrawal from investors due to various reasons. reports that
investors in London are wary about investing in Nigerian bonds due to
uncertainty regarding the Nigerian fractured foreign exchange market. It is
also reported that Foreigners held $5.4 billion of Nigerian bonds in September
2013 but dumped them after the country was ejected last year from the most
widely used GBI-EM debt index.

However, bonds still
remain an attractive source of funding for companies seeking debt funding in
contrast to equity funding which may deplete control and ownership of the
Company. Bonds are also attractive to Governments seeking an alternative source
of revenue for financing specified projects.

According to Investopedia,
a bond is a debt investment in which an investor loans money to an entity
(typically corporate or governmental) which borrows the funds for a defined
period of time at a variable or fixed interest rate. Bonds are used by
companies, municipalities, states and sovereign governments to raise money and
finance a variety of projects and activities. Owners of bonds are debtholders,
or creditors, of the issue. Bonds are commonly referred to as fixed-income securities
and are one of the three main generic asset classes, along with stocks
(equities) and cash equivalents. Many corporate and government bonds are
publicly traded on exchanges, while others are traded only over-the-counter


Stage 1- Eligibility : A
company seeking to issue corporate bonds must be either a Public Company,
Foreign Public Company or Supranational Body. Also, the issuing body must
ensure necessary approvals from SEC and other bodies are obtained before the
issue. Rule 568 of the SEC 2013 Rules also stipulate that all
issues must be rated by a rating agency. To ensure security for the purchaser,
the rule further states that a Company in default of interest or repayment of
principal in respect of previous debts issuance for a period of more than six
(6) months is not eligible for a debt offering.

 Stage 2- Due
Diligence :
A company seeking to offer bonds must conduct both legal
and financial due diligence. Legal due diligence may be done by the Company’s
Solicitors who will review the Company’s Memorandum and Articles of Association
for restrictive clauses that may hamper the issue. Financial due diligence will
entail a review of the Company’s financial records to evaluate a projection of
the source and application from the issue. A review of the tax implications of
the issue will also be necessary.

 Stage 3- Mode of
Depending on its target market for the
issue, the company is allowed to issue Bonds either through public offer or
private placement.  An issuer should confer with its issuing house,
underwriter, and/or financial advisor before the offering.

Stage 4- Authorization: Before
the issuance, the board of Directors of the issuing Company must authorize the
issue by passing a board resolution to that effect. A resolution of the General
Meeting will be required where the amount to be borrowed is beyond the
specified limit on the borrowing powers of directors in the Memorandum and
Articles of Association of the issuer, and where the bond to be issued is

Stage 5- Filing and
Application Stage: 
The company will file a registration
statement accompanied by the following documents;

Duly completed form SEC 6;

Appropriate filing and registration fees;

Two (2) copies of the board resolution
authorizing the issue of the bond or special resolution if needed

Two (2) copies of the Memorandum and
Articles of Association(CTC)of the Issuer

A copy of certificate of incorporation of
the issuer certified by the company secretary;

A signed copy of the Issuers latest audited
accounts for the preceding three (3) years, with the latest
account not more than nine (9) months old at the time of
filing with the Commission;

Reporting accountant report;

Consent letters of the parties to the

Two (2) copies of the draft vending
agreement between the issuer and the issuing house;

10.  Draft underwriting agreement (where

11.   Rating report by a registered rating

12.  A letter of “No Objection” from the
relevant regulatory body (where applicable);

13.    Two (2) copies of draft trust deed;

14. A draft prospectus, right circular,
placement memorandum or any form of information Memorandum with specified
contents in RULE 567(n)(i-xi)

15. Declaration by the issuer on compliance
with all requirements of the Act
Generally, Companies
seeking to offer bonds should be wary of issues such as:
The cost of timing of issuance (e.g.,
interest rate environment may rise, thus cost of funding rises)

2. Fees; Issuance costs; the smaller the
issuance, usually the greater percentage the costs are to size of issuance,

3. Initial and ongoing reporting obligations
and requirements to regulatory bodies and to bond holders,

4.  Downgrading of credit rating which may affect
subsequent borrowings,

5.  Low demand on issuance thus interest paid
may have to increase to satisfy investors’ demands.

has trained in Nigeria’s top two commercial law firms where he rotated seats in
various departments such as Power & Infrastructure, Oil & Gas, Tax
advisory, Banking & Financing, and Litigation & ADR. Odoemenam’s
experience spans working with teams that has advised high profile clients on
cross-border transactions and created business efficient solutions. Among
Odoemenam’s array of skills include contract drafting, legal due diligence,
commercial awareness and the ability to properly advise clients on a wide range
of corporate and commercial transactions.

Ed’s Note: This article was originally posted here