The federal government is now in favour of debt for low yielding bonds as against the debt for equity option recommended by the high-powered national conference on Nigeria’s debt problem held in Benin City at the end of July.
According to source, the preference for debt for bonds is informed by the need to protect the ownership structure of the Nigerian firms as holders of bonds do not claim ownership to any corporate concern covered by the bond.
The Benin conference had rejected the debt for bonds option mainly to guard against rounding-tripping. Delegates to the conference had argued that since the bonds are easily marketable (with Central Bank of Nigeria CBN, being buyer of debts at the good discount could easily resell bonds swapped with such debts and make profits ten fold.
But our sources remarked that government is not oblivious of such a possibility but pointed out that if such a resell occurs, foreign debts would have been converted to local debts in form of bonds, only that such bonds would not be held by the foreigner.
Government’s disfavour for debt-for-equity is also a point to the possibility that the federal government may reject the recommendations of the seven-man committee currently reviewing the Nigerian Enterprises Promotion (NEP) decree of 1977.
The committee has already earmarked some business favoured by the debt-for-equity proposal for the proposed schedule four of NEP decree where foreigners are to be allowed 80 per cent ownership. Some of these business are petrochemicals, raw materials processing, spare parts fabrication and various high technology industries.
The history of such businesses under schedule four of the decree would have made for an easy execution of the debt-for-equiry variant of debt equity swap.
However, the workability of the debt-for-bonds option is another uncertainty as potential subscribers hardly responded, in various countries where it has been tested.
Meanwhile, the federal government is yet to set up an implementative committee to handle the swap programme. This is mainly due to the fact that debt records are still being reconciled by the relevant authorities, Besides, certain other necessary instruments are yet to come on stream.
