By Omoh Gabriel, Business Editor
The Central Bank yesterday said it has expanded the N500 billion power and industry revival funds to include the aviation sector of the Nigerian economy as airline operators can now access the fund just the same way industrialist can access the fund. Those airline that are currently indebted to the banks can refinance their loans through the window provided by the CBN and amortise them over a period of 10-15 years.
According to the apex bank the inclusion of the aviation sector is based on the fact that most of the airlines in the country are heavily indebted to banks which is a risk to the banks concerned in particular and by extension the banking sector. According to the apex bank the decision is also to assist to prop up the demand side to facilitate continued economic growth. This the CBN said will help put off the feared financial crisis in the aviation industry.
It will be recalled that last week Vanguard reported that the CBN released the guidelines to the N500 billion power and industry revival fund set up by the apex bank. The guidelines stipulated that industries operating in the country seeking to refinance or restructure their operations can access a maximum of N1 billion from the apex bank sponsored N500 billion industry revival funds. The fund is no longer for industry alone as the CBN has now included the aviation sector.
According to the CBN guideline to the revival fund ‚ÄúLoan amount is a maximum of N1 billion for a single obligor in respect of refinancing/restructuring. The Fund shall be administered at an all-in Interest rate/charge of 7 per cent per annum payable on quarterly basis. Specifically, the Managing Agent (BOI) shall be entitled to a 1 per cent management fee and the Banks, a 6 per cent Spread
to be eligible to access the fund the CBN said ‚ÄúA borrower shall meet the following criteria to be eligible; any entity falling within the definition of an SME and/or manufacturer; an entity wholly-owned and managed Nigerian private limited company registered under the Companies and; Allied Matters Act of 1990. A legal business operated as a sole proprietorship; be a member of the relevant Organised Private Sector Associations such as MAN, NASME, NACCIMA, NASSI
The CBN guideline specified that ‚Äúany entity as defined above with an existing facility on the books of the Participating Banks can access the facility but emphasis will be on facilities that are indicating weakness arising from tenor, structure as well as facing cash flow difficulties.
According to the CBN ‚ÄúThe activities to be covered under the Fund are manufacturing stating that an entity will be adjudged to be a ‚ÄúManufacturer‚Äù if it is involved in the production and processing of tangible goods, Fabricates, deploys plants, machinery or equipment to deliver goods or provide infrastructure to facilitate economic activity in the real sector; and such entity must not be involved in the financial services industry. Such manufacturers the CBN said will include Small and Medium Scale Enterprise (SMEs) defined as an entities with an asset base (excluding land) of between N5 million and N500 million and with labour force of between 11 and 300.
The apex bank said in its bid to unlock the credit market it has approved the investment of the sum of N 500 billion Debenture Stock to be issued by the Bank of Industry (BOI). In the first instance, the sum of N 300 billion will be applied to power projects and N 200 billion to the refinancing/restructuring of banks‚Äô existing loan portfolios to Nigerian SME/Manufacturing Sector. These Guidelines relate to the N 200 billion re-financing and restructuring of banks‚Äô loans to the manufacturing sector and those for the power sector will be issued at a later date.
The objectives of the Fund the apex bank said are to Fast-track the development of the manufacturing sector of the Nigerian economy by improving access to credit to manufacturers; Improve the financial position of the Banks in the country, increase output, generate employment, diversify the revenue base,
increase foreign exchange earnings and provide inputs for the industrial sector on a sustainable basis.
The guideline stated that the Bank of Industry (BOI) shall be the Managing Agent and be responsible for the day to day administration of the Fund. Under the Fund, trading activities shall not be accommodated. The funds shall be used for Long term loan for acquisition of plant and machinery; refinancing of existing loans; resuscitation of ailing industries; refinancing of existing lease and working capital. It said that all banks and Development Finance Institutions (DFIs); excluding the Bank of Industry (BOI) are participating in the exercise.
The Loans the apex bank said shall have a maximum tenor of 15 years and or working capital facility of one year with provision for roll over and the Fund allows for moratorium in the loan repayment schedule.
Bank of Industry (BOI) will send out notice to all Banks and development finance institution for submission of refinancing/restructuring requests. The banks it further said should submit requests in the prescribed format within 14 days of he notice from BOI. Each request must be accompanied by the following documents: request from the customer seeking for such refinancing and/or restructuring; latest financials of the obligor (management accounts will be acceptable in lieu of updated accounts; copies of duly executed offer documents between the bank and the loan obligor evidencing existence of a facility; six months account statements showing the current exposure; an abridged business plan or feasibility study of the underlying project for which the facility was initially approved.
According to the guideline the plan must include the projects cash flow projections detailing the repayment schedule; certificate of Incorporation evidencing the incorporation of the Company with the Corporate Affairs Commission; a letter of commitment indicating that the requesting bank
shall on or before 31st December 2010, book new loans to the manufacturing / SME sectors in an amount not less than 50 per cent of the amount accessed under the Fund. All applications for refinancing/restructuring facilities can be made directly or by way of syndication, club arrangement or any other means involving two or more banks on the books of a bank. Within seven days of the receipt of the banks‚Äô requests, BOI shall inform the banks of the status of their application and also advice each bank of the amount of its facility that shall be refinanced / restructured under the Fund. An on-lending agreement shall be signed between BOI and each bank at this time. Within receipt of funds from the CBN, BOI shall require each bank, to pledge securities with face value of not less than 100 per cent of its specified refinanced amount to BOI through the Discount office of the CBN.
According to the CBN eligible securities shall include; Nigerian Treasury Bills; FGN Bonds; Other Bonds Backed by the guarantee of the Federal Government; any other securities acceptable to the CBN BOI shall within 24hours of receipt of the pledge (vide a pledge writer duly acknowledged by the discount office), credit each bank with the amount allocated to them ‚Äì and not exceeding the face value of government instruments pledged. The recipient banks are expected to apply the funds by restructuring and/or refinancing the stated accounts in line with the terms and conditions of their requests (especially as it relates to tenor and interest rates) within 48hours of receipt of funds from BOI. In the event a bank fails to meet its obligations, the BOI shall give 30 days notice of its intention to liquidate the securities. As a result of pledging of securities for this fund, the following prudential treatment shall be accorded through out the tenor of the loan.