The much-celebrated Federal Government’s N100billion mortgage-backed bond initiated to ensure success of the sale of Federal Government’s non-essential residential houses in the Federal Capital Territory to public servants under the monetisation policy of the then President Olusegun Obasanjo administration now pose a serious threat to the country’s rating by local and foreign investors, Nigerian Pilot can authoritatively report.
The recent approval of the payment of N24.564billion debt allegedly owed to Federal Government Bond holders by President Goodluck Jonathan is at the centre of the saga.
The beginning Sometime in 2006, when outgoing President Jonathan was still Deputy Governor in Bayelsa State, and in compliance with the Obasanjo administration’s monetisation policy, the government embarked on the sale of its own houses to public servants.
The N100billion mortgage-backed bond was to enable needy public servants get funds to acquire houses of the choices. Understandably, the then government directed the Federal Mortgage Bank of Nigeria, FMBN, which business is similar to the one envisaged by government through its Minister of Finance, Ngozi Okonjo-Iweala, to facilitate the bond programme. In order words, FMBN became the facilitator of the Bond Programme rather than the initiator.
The then government further ensured that all transactions incidental to the programme are independent of FMBN by channelling them through Special Purpose Vehicles, SPVs incorporated with the Corporate Affairs Commission, CAC. Eventually, the following companies were incorporated: FMBN SPV Issuer Limited, FMBN SPV Funding Limited and FMBN Mortgage Trustees Limited.
Instructively, the bond is managed by a Board of Trustees of which the FMBN SPVs, not FMBN is a member. Also, in addition to being the transaction sponsor, FMBN played the additional role of interfacing with relevant government agencies and stakeholders like Federal Ministry of Finance and the Debt Management Office, DMO, Securities and Exchange Commission, SEC, among others for the smooth running of the bond operations.
Other co-parties in the programme include but not limited to the following: UBA Capital, Lead Arranger/Adviser for Series 1 Bond, UBA Capital Trustees, Notes Trustees, FBN Trustees Limited, Security Trustee, G. Elias & Co; Transactions Counsel, Dunn Loren Merrifield Ltd, GIC Provider, Bond Series 2 & 3, Aso Savings & Loans Plc, Mortgage Loan Originator/Servicer and Stanbic IBTC Bank Plc that was the Account Bank for Series 2.
Bond Series Issuance While the 1st Series of the Bond was issued on May 25, 2007 for the sum of N26billion with maturity date of May 25, 2012, the 2nd Series was issued on April 3, 2012 for the sum of N6billion with maturity date of April 3, 2017. However, at the maturity date of the first Series on May 25, 2012, it was refinanced and became Series 3 Bond with maturity date of May 25, 2015.
Nigerian Pilot gathered that given economic realities of the past that have continued to threaten policies and plans of government, there have been challenges troubling the bond transactions as well agreed payments to holders. “Unfortunately, we have serious obligation under the Bond transactions which can undermine this country internally and externally,” said one expert in mortgage loans in Abuja.
It was learnt that the Bond transaction is guaranteed by the Federal Government with a Guarantee between the government as Guarantor and UBA Trustees Limited who are the Notes Trustee.
Thus, in the event of shortfall or default by FMBN SPV Issuer Limited, the Trustee will call on the Guarantee in line with the provision of the Notes Trust Deed that underlie the transaction.
Another obligation under the transaction is the fact that Mortgage Loan Originators that double as Servicers are under the transaction, expected to remit collections from the Mortgagors to the designated SPV account monthly.
The transaction agreement qualifies FMBN as a bank and thus, a Facilitator like/Sponsor like any other transaction parties in the Bond Transaction. Consequently, it is given that the Bond transaction is independent of the bank’s operations and therefore has no obligation to discharge in the event of default or shortfall at the maturity of the Bond.
Current threat Come May 24, 2015, the Series 3 Bond will be maturing with obligation on the Federal Government to pay a whopping N24.564billion to Note holders; and failure to so do at maturity, will lead to the call of FGN Guarantee that backed the transaction.
Such an action will spell doom for the country in local and offshore financial circles. But instead of worrying and seeking ways to avert the foreseeable danger, Okonjo-Iweala was said to have misled the President to approve the payment of a debt she approved under the Obasanjo Presidency in 2006 long before Jonathan became President.
According to sources close to the Ministry, Okonjo-Iweala advised the President to instruct FMBN to pay the debt, a development that poses grave danger to the liquidity of the primary mortgage finance institution. Fallouts/Okonjo-Iweala It was learnt that one Sunny Ayere of Dunn Loren Merrifield Limited who happens to be the Lead Arranger and Adviser to the Bond was an “Okonjo-Iweala boy.”
He was compensated by the minister with his appointment as the managing director of a hurriedly created Nigeria Mortgage Refinancing Company, NMRC, a secondary mortgage institution ostensibly established to take over the activities of FMBN “to cover up the mishap in the 2006/2007 FG-guaranteed mortgage-backed Bond transaction.” Said one insider: “Okonjo-Iweala thought the fund for the funding of the houses would be domiciled in NMRC for her “boy” to manage.
But FMBN resisted the move which many now alleged caused the recourse to the primary mortgage institution to pay the N24.564billion debt.” Another associate of the minister is the Managing Director of Aso Savings, Hassan Usman, who was said to have covered about 87percent of the transaction.
On Okonjo-Iweala’s recommendation, he was compensated with a board seat at both Assets Management Company of Nigeria, AMCON and one other juicy Federal Government-owned company.
Observers told this newspaper that if the minister had no ulterior motive, she ought to have advised Jonathan on “the needful thing to do, instead of trying to unleash her anger on the FMBN.” Among the strategies recommended by the experts are: “The Federal Government can redeem the Guarantee to meet the matured obligation and subsequently recoup from the unremitted collection by Aso Savings & Loans Plc totaling about N4.54billion.
Then it has to look at the non-performing loans of about N3.64billion and outstanding mortgages to redeem its obligation under the Series that will soon fall due,” said the Chief Executive of a private mortgage finance company last night.
Beyond the foregoing, one source advised that this is not the time to pass the buck since the Bond’s maturity date is due latest next week. He said DMO, and not the ministry should now assume the lead in resolving the saga rather than trying to undermine the agreements that gave rise to the transaction in the first place.
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