Section 224: Restriction on raising of funds from the capital market

(1) A body to which this part of this Act applies shall not raise sums of money or any part thereof by way of any internal loan directly from the capital market except in accordance with the provisions of this Act and the rules and regulations made thereunder.
(2) An application to raise a loan under this part of this Act shall be in such form as the Commission may direct.
(3) An application made under this section shall, be accompanied by such documents as may be prescribed by the Commission, from time to time, and shall include:
(a) in the case of a State Government and the Federal Capital Territory-
(i) a copy of the law authorising the issue of the bond specifying that a sinking fund to be fully funded from the consolidated revenue fund account of the issuer be established;
(ii) a copy of a rating report by an accredited rating agency registered by the Commission; and
(iii) an irrevocable letter of authority issued by the Accountant-General of the State or any person performing that function in the Federal Capital Territory, to the Accountant-General of the Federation, to deduct at source from the statutory allocation due to the issuer in the event of default by or failure of the issuer to meet its payment obligations.
(b) in the case of a local government:
(i) a copy of the law of the State to which it belongs authorising the issue of the bond by the local government and specifying that a sinking fund to be fully funded from funds accruing to the local government from the Federation Account be established;
(ii) a copy of a rating report by an accredited rating agency registered by the Commission; and
(iii) an irrevocable letter of authority issued by the Accountant-General of the State on behalf of the local government, guaranteeing the deduction at source from the statutory allocation due to the local government, in the event of default by or failure of the local government to meet its payment obligations; and
(c) in the case of a Federal or State Government agency or a company wholly owned by the Federal or State Government:
(i) a copy of the law or instrument establishing the agency or company authorising the agency or company to issue the bond; and
(ii) an irrevocable letter of guarantee of repayment of the loan issued by the Federal or State Government that owns the agency or company.
(4) The Commission may, in addition to conditions that may be prescribed in subsection (4) of this section, prescribe conditions or issue directives relating to any borrowing by State Governments and their agencies concerning any of the following matters:
(a) the funding of the sinking fund;
(b) underwriting;
(c) federal Irrevocable Standing Payment Order to the trustees of the sinking fund; and
(d) completion of the project, as would guarantee the repayment to the subscribers.
(5) The fund shall be managed by a corporate trustee registered by the Commission.
(6) The Commission may impose any penalty on a defaulting body and this may include:
(i) reprimand;
(ii) publication in the national dailies; and
(iii) blacklisting or foreclosure from raising further facility in the capital market.
(7) The trustee shall have the power to take legal action against the defaulting body failing which bondholders, holding at least, 10 per cent of the value of the bond shall have the right to call a meeting to pass a resolution compelling the trustee to take legal action.
(8) A bondholder who feels dissatisfied may personally initiate legal action to enforce his rights under the trust deed irrespective of the legal duty of the trustee to take such legal action.
(9) Where the Commission is satisfied with the securities offered by the issuer, it shall on an application by the issuing house waive the requirement for an irrevocable letter of authority provided that the issuing house shall not revert to the use of the irrevocable letter of authority to the office of the Accountant-General of the Federation for the recovery of the loan.
(10) Where the body raising funds is the Federal Government of Nigeria, the requirements for approval of primary issues shall not apply, provided that where the securities are to be traded on a securities exchange or capital trade point, they shall be subject to the regulatory requirements relating to secondary market transactions.
(11) Any amount deducted pursuant to the provisions of this section shall be credited into the sinking fund established under section 251 of this part of this Act for purpose of redeeming the outstanding obligation.
(12) A copy of the Irrevocable Letter of Authority issued pursuant to the provisions of this section shall also be lodged with the trustees appointed under section 245 of this part of this Act.