REAL ESTATE FUNDING
The various policy reforms under the democratic administration of Chief Olusegun Obasanjo since incepetion of the second term in year 2003 have paved way for tremedious progress in Nigerian economy particularly within the capital market. In the process of reforms, the change in baton from Chief Joseph Sanusi to professor Charles Soludo compelled the consolidation in Banking Industry.
However, the Governor of Central Bank of Nigeria under the distinguished Prof. Charles soludo charging any bank willing to operate in Nigeria to possess minimum capital base of =N=25 billion. The re-capitalisation has greatly favoured capital market. A lot of banks in Nigeria have made initial Public Offer (IPO) to meet up with CBN requirement. The dealine for the recapitalisation is December 31, 2005.
Alos the consolidation has been extended to insurance firms in the country as well. In essence, the re-capitalisation would bring about:
*Healthy and efficient operation in both banking and insurance industry.
*Create room for keen competition in the financial sector.
*Provide employment opportunities.
*Provision of long- term finances for real estate and other forms of investment in Nigeria.
* Availability of cheap funds to trade with and also reduces the lending rate.
It is high time the Mega Banks that would survive the present storm in the banking industry proactively integrate in their policy adequate provisions and strategies to parcitipate actively in the Real Estate Investment in Nigeria.
The availability of long-term funds obtained from Capital market would certainly encourage diversification of investment to spread risk rather that concentrating on short-term finance. It is crystal clear that bond market is gradually germinating and primary mortgage institution can also benefit immensely from the long-term funds available to finance Real Estate Investment. The Intercontienental Group has been a very versatile group streucture which is the product of synergised ideas of experience experts.
Meanwhile, the Real Estate Market and Operators/ Stakeholders must be prepared to tkae advantage of the funds for optimum returns. In view of the opportunities, permit me to use this medium to sensitise my colleague in the secotr to open up the following services for the nation.
Site and services: the professional Estate Surveyors and Valuers cum other allied professionals in construction industry to develop the vast fallow land in Nigeria. The concept would provie opportunities for low- income group to acquire land and excute construction of houses and therby reducing accommodation problems peculiar to Urban Centres.
Aquisition of Properties: the Capital Market can be utilized by professionals to source funds for acquisition and maintenance of a mighty building. The funds can be raised in branches and made either close or open.
the main actors in the Capital Market are the securities and Exchange Commission (SEC). the Nigerian Stock Exchange (NSE) Market Operators such as issing Houses (Banks and Stock Broking firms) Trustees, Registrars, Central Bank of Nigeria (CBN) and Investors.
the operations of the Nigerian Capital Market are governed by the following Legislations;
the Stock Exchange Act, 1961,
Indigenisation Act, 1972, and 1973
Securities and Exchange commission Act, 1988
Nigerian Enterprises Promotion Act, 1989
Privatisation and commercialisation Act 1988
Companies and Allied Matter Acts 1990
Investment Promotion Act 1995. Debt as an instrument in the capital Market could be government Bond/ Stock or Corporate Debentures. It is mandatory for managers of pension funds to invest part of their funds in govenment stock as stipulated in the Trustee Investment Act 1992, The Insurance Act 1991 (as amended) also compels insurance companies to invest 35% of their funds in quoted securities. State Government Bonds are usually project tied. Seeking funds are created for purpose or redemption while security is ensured by direct deductions form Government Statutory Allocation.
It could be safely said that hte Nigeria Capital Market had limited adaptation to Housing and Urban Infrastructure Investment considering the samll number of such investments among the numberous transactions in the market.
MODALITIES FOR FLOATING HOUSING AND INFRASTRUCTURE BONDS
Project Identification/ quantum of funds.
The first step before embarking on raising finance is to identify the projects, define the types, scale and scope of housing and infrastructure development that will be socially desirable and economically viable. It would be contained in a Feasibility Report to determine the extent of funds required to be raised from the Capital Market.
Project Management
Project Managers must be constituted, either by contracting reputable Estate Developers / building firms or forming a company to manage the execution of the Project.
Application to Statutory bodies
In floating bonds applications have to be made to the following statutory bodies;
* The securities Exchange Commission (SEC) for registration and filling of the prospectus, and
* The Nigerian Stock Exchange (NSE) for the admission of the Bond to be quoted on its official list.
Parties to the Issue
the following experts must be appointed, in accordance with SEC guidance for an organisation to raise funds from the Capital Market, namely
The Issuing House acts as financial Adviser and will also pacakge structure, obtain approval for and market the issue
Stock brokers to the Issue
prepare the application, ensure listing of the bond and render advice to ensure compliance with listing requirement.
Underwriters: ensure that issuers receive full proceeds of the issue whether or not the Bonds are fully or undersubscribed to, within the time scale specified for receipt of proceeds.
Trustees Ensure that the terms of the trust deeds are observed.
Registrars
Accept and process returns of application fom the receiving banks
Reporting Accountants and Auditors
Report on the audited financial statements presented in the prospectus.
solicitor to Issue
Advise the Issuing House on the legal aspect of its functions and review the issue documents for the Bond.
solicitors to Issuers
Advise Issuers on legal aspects of the exercise.
Receiving Banks
They will act as Bankers of the Issue
The appointment of the above listed experts is followed by charting a milestones for the entire exercise, focusing on the time scale of issue, preparation and submission of draft prospectus, filling of Board Resolution with Registrar of Companies, Publication and Advertisement of prospectus in the Newspapers, allotment and issuance of Certificate of Allottees and disbursement of Proceeds to Issuers of Bonds.
Issue Documentary Requirement
There are certain documents to accompany the application to the statutory Bodies (Mentioned above)
* Detailed profile of the organisation
* Feasibility Report on the project under consideration
* Draft prospectus - 2 copies of draft prospectus and abridged prospectus.
* Trust Deed
* Underwriting Agreement
* A written Proposal on the back up the Bonds
*Letter of consent to the Issue form relevant supervisiong Ministries.
*copy of Board Resolution authority for the Issuance the Bonds.
* Copies of accounts for the last 5 years for the organisation.
*Certificate of Incorporation or statute establishing organisation (Certified true copy)
* Memorandum and Articles of Association (Certified true copy) in the case of an incorporation organisation
Repayment Plans.
It is necessary to discern adequate stimulus to activitiy, efficiency and competitiveness in the capital market towards increasing the quality of service. Also the stiff procedures for raising funds vide capital market must be adjusted and streamlined to encourage several Real Estate Operatos to embrace the alternative sources of finance. In a nutshell, there must be well structured platform to facilitate the use of capital market source funding for Real estate Investments.
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