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Okonjo-Iweala, FMBN disagree over responsibility for N100b monetisation bond

By The Rainbow
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Ripples of the federal government’s monetisation policy during the  former president Olusegun Obasanjo administration are still in the air as the N100 billion bond guaranteed by the federal government to bankroll the process had not been duly serviced.

The Federal Mortgage Bank of Nigeria (FMBN), the Debt Management Office (DMO) and the Federal Ministry of Finance had argued back and forth over the bond, which eventually prompted the Coordinating Minister of the Economy and Minister of Finance , Ngozi Okonjo Iweala to issue a directive, mandating the FMBN to accept responsibility for the bond.

The five-year bond was initiated in 2007 to ensure success of the sale of federal government’s non-essential residential houses in the Federal Capital Territory (FCT) to public servants.

FMBN had argued that it neither sponsored nor guaranteed the transaction, and as such should not be held responsible or liable for the bond.

It also stated that principal actors in the transaction noticed the mismatch, but the then minister of finance overlooked the lapses.

According to the directive conveyed through a letter dated 15th May 2015, addressed to the Minister of Lands and Housing, Mrs. Akon Eyakenyi, a copy of which was obtained by THISDAY, Okonjo-Iweala recommended that assets of FMBN be sold to offset the sum of N24.564 billion, being the first tranche of the bond, which matures on 24th May 2015.

The letter reads in part; “I wish to recommend that Mr. President considers directing the Honourable Minister of Lands, Housing and Urban Development to direct the FMBN to raise funds to pay its maturing obligation of N24.564 billion on May 24, 2015, as it must forestall imposing a crisis on the economy.”

The minister also directed that FMBN should ensure remittance of N4.54 billion collected on its behalf by Aso Savings and Loans Limited, adding that the mortgage bank should immediately recover all the non-performing loans.

“FMBN should ensure that Aso Savings and Loans Limited immediately remit the collections of N4.54 billion which it has failed to remit to the FMBN. FMBN to immediately recover all the non-performing loans, including the use of Foreclosures (where the C of Os’ of the properties are in the custody of the security trustees) of the assets of the defaulters, and take all necessary actions to ensure that the federal government guarantee does not crystalise.”

The Debt Management office (DMO) had identified negative carry (interest rate subsidy), non-performing loans and non-remittance of collections as major challenges encountered by the bond transaction.

Meanwhile, Managing Director of FMBN, Gimba Ya’u Kumo, in a letter dated 29th April 2015, addressed to the DMO, had explained that the bond issuance programme was at the instance of the federal government.

He had also added that the federal government's guarantee that supported the bond transaction was between the federal government as the guarantor, and UBA Trustees Limited as the Notes Trustees.

“The bond was structured in consultation with the federal ministry of finance and the DMO, both the tenor and the interest mismatch were identified at the time but overlooked by the then minister of finance.”

Kumo in the letter noted that the guarantee was irrevocable and unconditional, which according to him, requires the guarantor to make good its obligation in the event of default of shortfall.

According to Kumo FMBN was just a facilitator of the bond programmme, through a Special Purpose Vehicles incorporated at the Corporate Affairs Commission (CAC), namely FMBN SPV Issuer Limited and FMBN SPV Funding Limited and FMBN Mortgage Trustee Limited.

He added that FMBN earned a fee for the role it played, insisting that the federal government guaranteed the bond.

Kumo stated further, “The federal government can redeem the guarantee to meet the matured obligation and subsequently recoup from the UN-remitted collections by Aso Savings and Loans Plc. (N4.54 billion), non-performing loans (N3.64 billion) and outstanding mortgages. It is our view that passing the buck at this time that the bond is almost maturing is unhelpful.”This Day

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