Fiduciary Role of Trustee in Bond Issues

Presented by :
Tokunbo Ajayi
Head, Trust Services, UBA Trustees Limited
(Association of Corporate Trustees)
Summary of Presentation
• Introduction

• The Bond Market

• Who is a Trustee

• Trustee s Fiduciary Role

• Role of Trustee in Bond Issues

• List of Bond Issues

• Conclusion
Introduction

The Nigerian Bond Market has recently been re-activated

to both deepen it and ensure a vibrant Market.

The following constitute the Bond Market:

•  Federal Government Bonds

•  State Bond Issues

•  Municipal Bonds and

•  Corporate Bond (Debenture Stock Issues)

The Bond Market
Bonds are essentially long term debt instruments and
the Bond Market in any structured economy is geared
primarily to:

l  Guarantee access to potential resources for:

o  Government infrastructure / developmental purposes
o  Company’s projects
o  Investments

l  Provide an outlet for Investors to:

o  Save by investing surplus resources

o  Enjoy stable predictable returns
o  Trade the securities on the Floor of the NSE
Who is a Trustee?

The Trustee is an independent and impartial 3rd Party playing a

key role in financial transactions and is often charged with
protecting/bridging conflicting interests such as between Issuers
& Bondholders.
What is the role of the Trustee?
The role of the Trustee stems from the English Common Law &
the doctrines of Equity.

The concept has been found to be useful for the purpose of

enhancing the growth, development of mass participation in
the financial markets by addressing the following issues:

•  Confers title of the trust property on the Trustee and

•  The right to deal with same as stipulated in the Trust Deed.

Trustee s Fiduciary Role
The role and involvement of Trustee in Capital Market transactions
creates a peculiar and contractual relationship between the Parties;
the Issuer, the Trustee and the Bondholders.

Bonds as a long term commitment, involves many risks, such as

interest rate, political etc so the Trustee according to Rule 306 of the
SEC Rules & Regulations, 2007 should ensure that the following are in
place for all State & Local Govt. Bonds:

l  The enabling Edict.

l  Registration with the Commission.
l  An irrevocable order authorizing the repayments through the
monthly statutory allocation from the Federal revenue allocation.
l  The Feasibility Report on the specific project.
Trustee s Fiduciary Role …. 2

For Corporate Bodies to tap into the huge resources

available in the Capital Market, the Trustee must:

l  Ensure that SEC s approval is obtained.

l  Ascertain existence of sound financial reporting and
management by the Issuer.
l  Definite provision must be made to repay the debt by
setting up the Sinking Fund Account, because it is a fixed
charge, which must be met whether profit is made or not.
l  Evaluate the viability of the project to be financed to pay
back the invested fund to the Investors (the Bondholders).
Role of Trustee in Bond Issues
The fiduciary role of the Bond Trustee comprises:

l  Protecting the interest of Bondholders.

l  Computation of the Bondholders Principal & Interest

entitlements.

l  Ensuring that the Bondholders are paid on due dates.

l  Monitoring compliance with the Bond covenants.

l  Convening Meetings, whenever the need arises.

l  Safeguard and assure the integrity of the security by

holding and managing the charged security assets.
 Role of Trustee (Cont ...)
l  Exercising the degree of care, skill & diligence of a prudent
financial expert in the management of the Sinking Fund.

l  Representing Bondholders interest and giving necessary

approvals/consents.

l  Exercising discretionary powers in the interest of

Bondholders.

l  Authorizing waivers and modifications as they deem fit.

l  Rendering periodic Reports to the Issuer and the Regulators,

the SEC &the NSE.

l  Ensuring that the Bond is rated on an annual basis.

Sub-National Bond Issues
Stated hereunder are some of the State Bond Issues:

•  1st Bendel State Loan Stock, 1978 - N20 Million

•  1st Ogun State Loan Stock, 1985 - N15 Million
•  2nd Ogun State Loan Stock, 1987 - N15 Million
•  1st Oyo State Loan Stock, 1987 - N30 Million
•  1st Lagos State Loan Stock, 1987 - N30 Million
•  2nd Lagos State Loan Stock, 1988 - N60 Million
•  1st Kaduna State Loan Stock, 1989 - N30 Million
•  1st Edo State Bond Issue - N0.5 Billion
•  1st Delta State Floating Bond, (2003/2007) - N5 Billion
•  1st Yobe State Bond Issue - N2.5 Billion
•  1st Cross Rivers State Bond Issue - N4 Billion
•  1st Ekiti State Floating Rate Bond, 2002 - 4 Billion
Sub-National Bond Issues (Cont ...)
Stated hereunder are some of the State Bond Issues:

•  1st Akwa Ibom State Bond (2005/06) - N6 Billion

•  1st Kebbi State Bond Issue, 2006 - N3.5 Billion
•  1st Lagos State Bond Issue, 2008 - N50 Billion
•  1st Niger State Bond Issue, 2009 - N10 Billion
•  1st Kwara State Bond Issue, 2009 - N17 Billion
•  1st Imo State Bond Issue, 2009 - N18.5 Billion
•  2nd Lagos State Bond Issue, 2010 - N57.5 Billion
•  1st Ebonyi State Bond Issue, 2010 - N16.5 Billion
•  1st Kaduna State Bond Issue, 2010 - N8.5 Billion
•  1st Bayelsa State Bond Issue, 2010 - N50 Billion
•  1st Edo State Bond Issue, 2010 - N25 Billion
•  1st Benue State Bond Issue, 2011 - N13 Billion
Corporate Bonds
Stated hereunder are some of the Corporate Bond Issues:

•  Afprint Nigeria Plc - N100.0 Million Convertible Unsecured

Debenture Stock (1996/2000)
•  Avon CrownCaps & Containers (Nigeria) Plc - N30.0
Million Floating Rate Redeemable Debenture Stock
(1994/2000)
•  Enpee Industries Plc - N100.0 Million Convertible
Debenture Stock (1998/2000)
•  Nigerian Breweries Plc - N7.0 Billion Variable Rate
Debenture Stock (2000/2003)
•  Seven-Up Bottling Company Plc - N40.0 Million
Unsecured Irredeemable Debenture Stock
Corporate Bonds (Cont ...)

Some recent Corporate Bond Issues are:

•  Access Bank Plc

•  C & I Leasing Plc
•  Chellarams Plc
•  Dana Group
•  Gas Terminaling & Distribution Limited
•  Flour Mills of Nigeria Plc
•  First Bank of Nigeria Plc
•  Food Concepts SPV Plc
•  Fidson
•  Fidelity Bank Plc
Corporate Bonds (Cont ...)

Other Bond Issues are:

•  First City Monument Bank Plc

•  NAHCO
•  Oando Plc
•  Thomas Wyatt
•  United Bank for Africa Plc
•  UPDC Plc
•  Zenith Bank Plc
Conclusion

The role of the Trustee is certainly an onerous task and along

the way, the Trustee is sometimes exposed to some liability as
a result of the fiduciary duty and absolute duty of care that
the Trustee owes the Bondholders.
Thank you ALL for listening