SECURITIZATION OF DEBT (DEBTEQUITY SWAP) IN THE NIGERIA
This study is an attempt to appraise the securitzation (Equalization or capitalization) of debt (debt equity swap) as the latest international debt management strategy geared towards solving Nigeria’s debt problem. In doing this the study will delve to the genesis, structure, growth and management of the 2000-2005 external debt in Nigeria. Debts securitization or what is now know as “debt equity swap” is a form of debt conversion in which part or all of a country’s external public debt is converted into Equity shares or securities in government or publicly owned companies , agencies and parastatals and these are discounted to their present values because of their different maturity dates. Securitization is also a substitution of market oriented intermediation for institution based intermediation, theoretically, it involves the establishment of financial assets and liabilities and the provision of financial services, and can occur in two ways, one by banks acting as intermediary accepting deposits, and advancing loans with some form of contractual agreement, and secondly through traded markets where borrowers sell debt contracts some of which include commercial papers, banks acceptance certificate of deposits, euro notes etc.This research will be based solely on secondary data collection from Hounrals, CBN. Financial Journals CBN monthly, quarterly reports. Different edition of CBN bullion and economic and financial review played a vital role on this regard. Again personnel interview yielded positive result to this work.Finally based on the data collection, Analysis were made which was preceded by recommendation and conclusion of this project.During the period of this study there were confiding figures of Nigeria external debt outstanding. The central banks published figures differs from the figure of federal office of statistics and world debt table.There were expensive short and medium term borrowings from the international capital market (ICM)within Nigeria debt profit which proper debt management could have avoided. There were also huge accumulated trade arrears in Nigeria’s debt structure.Now based on the above finding, the following recommendation were made. Securitization of debt in view of our present economic situation should be undertaker in a – one to one basis or indirectly in the form of portfolio investment through the establishment of mutual funds i.e (uni-trust type of organization to which creditor belong.There is urgent need for the compilation of Nigeria’s debt profile in order to know the exact amount of her debt, it’s structure and ownership and determine which of the debts could be subjected to the ongoing conversion programme.
BACK GROUND OF THE STUDY
The term debt conversion is a debt management strategy which enable a debtor country to reduce it external debt burden by changing the character of its debt .the conversion can be in different forms .debt to equity or debt securitisation or debt equalization or debt capitalization ..debt to debt or redenomination of debt in total currency ..debt for good or exports ..debt for working capital ..debt to assets ..debt to quasiequity ..relenting ..debt for restricted use cash ..debt peso swap Debt securitization or what is now known as ‘’debt equity swap ‘’is a form of debt conversion in which part or all of a country’s external public debt is converted into equity shares or securities in government or public owned comprises agencies and prostates and these are discounted to their present values because of their different maturity dates.
Debt securitization is now a contemporary issue in developing country who at the peak of the world debt crisis, could not meet up with their external debt obligation and other who in the process trying to meet up with these obligation utilize between 25 and 45 of the annual foreign exchange earning in debt servicing .Nigeria for instance mapped out above 26 billion of the total 2000 annual expenditure for debt servicing. It can be recalled that the world debt crisis came to limited in august 2002 when Mexico and other Latin American countries like Chile .caste Rica Bolivia and Brazil announced to the international monetary fund [lmf]international finance corporation [lfc] international development association [lda] and the international capital market [lcm] made up of the London and particles of creditor that they can not longer meet up with their external debt obligation .this development greatly affected different international markets ever since ;The creditor ;after long research and consultation introduces the alternative which is debt conversion which before 2001 was restricted to Latin American counties and non Latin American counties like Philippines and turkey ;debt conversion scheme has recently gained wide acceptance in most destroy developing counties, securitisation is also a substitution of market oriented intermediation for institution based intermediation .
theoretically it involves the establishment of financial services ,and can occur in two ways ,one .by banks acting as intermediary accepting deposits and advancing loans with some form of contractual agreement and secondly through trademarked where borrower sell debt contract some of which include commercial papers banker acceptance certificate of deposit connotes etc. Securitization exists if the balance of advantage is against both borrowers and leader while the bank provide such service as monitory and controlling the market provide liquidity by being able to sell the securities against holding them and rate different to a borrower between securities and direct bank borrowing lies In the relative advantage accrued to lender of the liquidity of traded.According to IMF document report Nigeria is one of the 5th most heavily indebted counties among the developing counties who need one form of adjustment or the other in order to contain their debt problem according to it African today owe about 60 of the global debt with Nigeria accounting. It was based on the concept and relevance of this scheme to Nigeria economy and the slow rate of implementation of this scheme that made the researcher to have an in depth of debt study of debt securitization and its operational paradigms.
1.2 STATEMENT OF THE PROBLEM
Generally, the indebtedness of the country becomes a problem when the burden of servicing the debt becomes so heavy and unbearable that it imposes intolerable constraints on the economy and on the development efforts of the authorities. The causes of Nigeria’s external debt problems are related to the nature of her economy – this has to do with the country’s over-dependent on foreign goods as against locally produced goods; economic policies pursed or put in place by successive governments – not only did government and its agencies continue to borrow indiscriminately from abroad and suing short were not adequately monitored; exogenous factors which are beyond the control of the government itself which include the value of foreign currencies against the Naira and shorter payment period; all of which uncombined together to influence the macro-economic factors thereby holding the growth rate to a level too low for sustained development.