Securities and Exchange Commission (SEC) has officially launched its Green Bonds Issuance Rules amid commendations from stakeholders.
The Nation had in October 2018 reported the inclusion of the rules and regulations on green bond issuance and management in the Nigerian capital market regulatory framework.
Acting Director-General, Securities and Exchange Commission (SEC), Ms Mary Uduk at the formal launch of the rules yesterday in Abuja, said the release of the green bond rules is a significant step in complementing efforts of the government, regulators and the financial services industry to direct financial capital to more sustainable economic activity.
“As Nigeria strives to harness the resources of non-oil sectors to anchor the transition to a more resilient economy, there is the urgent need to close the country’s infrastructure gap with investments in sustainable finance initiatives,” Uduk said.
Director, Financial Markets, FSD Africa, Dr Evans Osano commented SEC for its professionalism and quick turnaround in the preparation of the guidelines.
According to him, the new guidelines were prepared in line with leading international guidelines and standards providing confidence to domestic and international investors.
“It also provides certainty to issuers of green bonds in Nigeria. FSD Africa is pleased to have supported this process which is a milestone for the Nigeria green bonds market,” Osano said.
Africa Markets Programme Manager, Climate Bonds Initiative, Mr. Olumide Lala, noted that the launch of the rules brings much needed clarity and guidance on the issuance of green bonds.
According to him, adopting the tenets of the green bond principles and climate bonds standard makes it easier to attract foreign investment where needed.
The Federal Government had in July 2018 listed its maiden N10.69 billion green bond on the stock market. The five-year bond carries a coupon rate of 13.48 per cent. Nigeria’s first sovereign green bond was oversubscribed by about N100 million as investors staked N10.791 billion on the N10.69 billion maiden bond. The Debt Management Office (DMO) had in December 2017 launched Nigeria’s maiden sovereign green bond as part of efforts to diversify government revenue and deepen the domestic capital market.
At the close of the offer, total subscription stood at N10.791 billion compared with the offer size of N10.69 billion. Among the investors who subscribed to the green bond were banks, pension funds, asset managers and retail investors.
The issuance of the green bond and listing were sequel to Nigeria’s endorsement of the Paris Agreement on Climate Change on September 21, 2016. The Paris Agreement aims to strengthen the global response to the threat of climate change.
The green bond regulatory framework defined a green bond as any type of debt instrument, the proceeds of which would be exclusively applied to finance or re-finance in part or in full new and or existing projects that have positive environmental impact.
The rules indicated that green bonds would be used exclusively to finance renewable and sustainable energy, clean transportation, sustainable water management, climate change adaptation, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation and any other categories as may be approved by SEC from time to time.
The regulations highlighted some special conditions that any issuer of green bond must fulfill in addition to the general registration requirements for debt issuances as stated in the Rules and Regulations of the Commission for States, Local Governments, Corporate and Supranational agencies.
According to the rules, an issuer of a green bond shall also file a feasibility study and report stating clearly, the measurable benefits of the proposed green project or assets such as green house gas reduction, reduction of water use and reduction of harmful emissions.
The issuer must also file a prospectus which shall include project categories, project selection criteria, decision-making procedures, environmental benefits, use and management of the proceeds as well as a letter from the issuer committing to invest proceeds of the bond in green projects or assets.
The issuer must also provide an independent assessment or certification issued by a professional certification authority or person approved or recognised by the Commission in addition to any other documents that may be required by the Commission.
“The net proceeds shall only be utilised for the purpose stated in the approved offer documents and shall be tracked as stated in the approved internal policy of the Issuer which shall be disclosed in the offer documents,” the rules stated.
The parties to the issue are expected to create an escrow account meant specifically for the net proceeds of the offer while the proceeds shall be domiciled with the custodian. While the trustees shall ensure that the proceeds are used for the purpose stated in the prospectus, the issuer and the trustees shall be the signatories to the escrow account.
“The issuer shall invest proceeds in green projects within the given timeframe prescribed in the prospectus.
Unallocated proceeds shall be invested in money market instruments with investment grade rating and this shall be disclosed in the offer documents,” according to the rules.
According to the rules, where the issuer proposes to utilise a proportion of the issue proceeds of the issue of green bonds, towards refinancing of existing green assets, the issuer shall clearly provide in the offer document the details of the portfolio, assets and projects which are identified for such refinancing.
The issuer is also expected to publish the utilisation of proceeds in at least two national dailies on an annual basis which shall contain the details of the key factors capturing the environmental impact of such investments and the same shall be disclosed in its annual report and website.
