Reviewing the Effect of the Securities and Exchange Commission Rules on Securitisation on Project Finance in Nigeria

Description

ABSTRACT

Reviewing the Effect of the Securities and Exchange Commission Rules on Securitisation on Project Finance in Nigeria

Adefolake Adewusi*

In 2015, the Securities and Exchange Commission (SEC) published its Rules on Securitisation to regulate securitisation. Given some apparent similarity between project finance and securitisation, and the absence of any regulatory framework for project finance in Nigeria, this paper examines the provisions of the SEC Rules on Securitisation, in order to extract and apply the learnings from them to advance it’s development of in Nigeria. This paper using the doctrinal approach, finds that the SEC Rules on Securitisation are not a perfect fit for project finance. The paper proposes the creation of a regulatory framework for project finance in Nigeria which does not unduly stifle the contractual freedom of parties to self regulate the security interests used therein.

Keywords: Securitisation, SEC Rules, Project Finance, Security Interest.

INTRODUCTION
Project finance is a type of secured credit transaction because it combines the elements of various forms of security to ensure that credit facility advanced for a project is recovered.₁ A prime reason for taking security in a limited or nonrecourse alternative funding mechanism like project finance is to provide the lenders with a better chance of recovering their money in an insolvency scenario.₂

Securitisation is a financial engineering₃ mechanism by which assets are sold to a bankruptcy remote special purpose vehicle in return for an immediate cash payment.₄ The cash payment can be raised through the issuance of debt securities by the special purpose vehicle.₅

Project finance by its framework, typically involves the use of a special purpose vehicle to raise finance to operate a project. Project finance loans are also assets that can be securitised.₆

* LLM, MCIArb, ACIS, ACTI. Doctoral Researcher, University of Lagos

1. Imran Oluwole Smith, Nigerian Law of Secured Credit, (Ecowatch Publications Limited 2006) 27, Jelili Adebisi Omotola, The Law of Secured Credit (Evans Brothers 2006) 27, Michael Greenhalgh Bridge et al, ‘Formalism, Functionalism, and Understanding the Law of Secured Transactions’ (1999) 44 McGill Law Journal 567, Benjamin C Esty and Aldo Sesia, ‘An Overview of Project Finance and Infrastructure Finance’ (2011) Publication of Harvard Business School.
2. ibid.
3. A Abibu, ‘Securitization in Nigeria: A Legal Perspective’ (2016) 3 International Journal of Innovative Research and Advanced Studies 383, 386 states that financial engineering entails the deliberate activation of complex web of legal and accounting manoeuvring mechanism involving organisational commitment to earning management and skewed by depleted desire for transparency. Enron’s case depicts the misuse of SPVs as a tool of financial engineering. T Segal, ‘Enron Scandal: The Fall of a Wall Street Darling’ accessed August 2019.
4. Imran Oluwole Smith (ed.) ‘Secured Credit in a Global Economy – Challenges and Prospects’ A Publication of the Department of Private and Property Law, Faculty of Law, University of Lagos (2003) 33.
5. ibid.
6. ibid.

THE GRAVITAS REVIEW OF BUSINESS & PROPERTY LAW VOL.11 NO.1