By Charles Ike-Okoh
THUR 10 JUNE, 2021-theGBJournal- The Securities and Exchange Commission (SEC Nigeria) has laid out broad-based rule for Social Bond issue that has the potential of attracting billions of dollars to finance environment and social change in Nigeria.
In the proposed new rule SEC defined eligible projects that qualifies as a Social Bond, conditions for approval of Social Bonds, how the net proceeds from Social Bonds are managed and utilised, the reporting process as well as how the issuer shall ‘’clearly disclose’’ in the offer document the details of the portfolio/assets/projects which are identified for refinancing.
SEC also recommended that an issuer shall appoint (an) external review provider(s) to confirm the alignment of the proposed bonds with all components of the Social Bond Principles.
According to SEC, ‘’an external review may be partial, covering only certain aspects of an issuer’s Social Bond or associated Social Bond framework, or full, assessing alignment with all components of the Social Bond Principles, and external review providers shall disclose their credentials and relevant expertise and communicate clearly the scope of the review(s) conducted.’’
The volume of social bonds issued in 2020 has increased eight times from a year ago, as interest in ethical investment rises and more governments and agencies see them as a key funding tool for specific projects.
Issuance of social bond is expected to grow by 6% to $150 billion in funds raised this year and so far it has surged to $65 billion, compared with $10.6 billion in the same period of 2019. The popularity of Social bonds has increased as the COVID-19 crisis has led investors to place more emphasis on the “social” component of environmental, social and governance-driven (ESG) investing.
SEC noted that governments, people and business have suffered serious financial crunch as a result of the COVID-19 Pandemic.
‘’In Nigeria, funding of social projects was affected as resources were diverted to unexpected areas of expenditure which ordinarily could have been financed by issuance of social bonds,’’ SEC said in their statement on Monday when they laid out the new rule.
Meanwhile, the African development Bank (AfDB) has played quite actively in the market since 2017 when it established its Social Bond framework. It went on that year to raise the equivalent of $2 billion through issuances denominated in Euro and Norwegian krone.
In 2018 the Bank was designated by financial markets, ‘Second most impressive social or sustainability bond issuer” at the Global Capital SRI Awards..
In May this year the development bank raised $3 billion in a three-year bond ‘’to help alleviate the economic and social impact the Covid-19 pandemic will have on livelihoods and Africa’s economies.’’
Also in May this year, Ghana followed the trend with announcement of their Social Bond in which they plan to raise as much as $1 billion.
SEC’s Definition of Terms
“Social Bond” means a type of debt instrument, where the proceeds would be exclusively applied to finance or refinance new and/or existing eligible projects with clear and identifiable social objective(s) and which are dedicated to an identified population.
“Social Projects” means a project directly aim to address or mitigate a specific social issue and/ or seek to achieve positive social outcomes whether or not exclusively, for a target population.”
“Look-Back period” means a maximum period in the past that an issuer can ‘look back’ to in order to identify assets/earlier disbursements to ‘eligible social projects’ that can be included in the social bond reporting.
See attached Exposure of proposed New Rule of SEC