THE Securities and Exchange Commission (SEC), has called on capital market operators (CMOs) in Nigeria to review the disposition towards issuance of debt instruments by both state and local government agencies.
The executive commissioner of operations, Bola Ajomale, made the call at the 2024 International Credit Rating Webinar organised by DataPro Limited, according to a statement the organiser shared with The ICIR on Friday, October 18.
According to the statement titled, ‘time to review proclivity of debt issuance by subnationals,’ Ajomale, represented the director general of SEC, Emomotimi Agama, at the virtual event said, “Irrevocable Standing Payment Orders (ISPOs) from the state government cannot be the only measure of assurance and risk mitigation.
“CRAs (credit rating agencies) must alter their measurement metrics to accommodate rising risk levels and increasing requirements for sustainability for any instrument raised by a State or quasi government body.”
Another looming situation emphasised by the SEC commissioner is the tendency for some state governments to issue private bonds guaranteed by the state government.
“Not only do these not have any proof of secondary market value they need to be assessed for delivery of the stated project objectives,” Ajomale stressed.
He also urged stakeholders to explore ways to leverage the role of credit rating agencies in driving sustainable economic development in Nigeria.
In a welcome address, DataPro’s founder, Abimbola Adeseyoju, said apart from the established role of providing an opinion on the quality of assets and capital, credit rating agencies serve as a complement to risk management procedures.
He maintained that rating agencies should serve the common goal of catalysing the economy, promoting the real sector and creating wealth for a sustainable society.
In a keynote presentation, an international banking entrepreneur, Christian Ruehmer, urged banks to support businesses in the real economy.
Ruehmer believes rating agencies and banks share a common goal in ensuring that businesses succeed.
“Rating Agencies embody the need for robust financial expertise and a deep understanding of a company’s financial standing. At the same time, they provide a product that is trusted and reliable. Banks rely on CRAs to facilitate their work and collaborating with the wider financial sector to offer credible insights into a company’s long-term potential.
“A developing country like Nigeria can only grow if it finds a better way to finance domestic companies. And to do this, banks and investors must become more comfortable assessing these companies and that is when Credit Rating Agencies come in,” he said.
The ICIR had earlier reported the panellists argued that domestic borrowing in local currency limits default risks as against external borrowing and better positions economies like Nigeria to avoid over-reliance on institutions like the International Monetary Fund (IMF).
This year’s webinar is the fourth in the series and was attended by participants drawn from Nigeria, USA, Canada, South Africa, Ghana, Gambia, Namibia, Kenya and Rwanda.