Asset Securitization in Nigeria: Legal challenges and Prospects
A Thesis Submitted to the School of Postgraduate Studies, University of Lagos
Asset securitization is one of the new methods of financing beyond the horizon of the traditional equity and debt financing and it is still untested waters in Nigeria. This study is set against the background of possible utility of asset securitization in Nigeria and adequacy or otherwise of the existing law in structuring asset securitization given the peculiarities of the transaction. It adopted the analytical research approach involving analysis of case law and statutory provisions as well as secondary sources of law and scholarly writings by application of the power of reasoning. The study discussed and identified the areas of utility of asset securitization in Nigeria. For instance, providing access to banks funds to match their regulatory capital requirements and their financial obligations; possibility of investment in asset securitization under the National Pension Commission by its Regulation on Investment of Pension Fund Assets; the possibility of asset securitization helping in addressing the challenges in the housing sector; and possible utilization of asset securitization in facilitating access to immediate funding from the capital market to address the infrastructural problem. The study established a link between asset securitization and security interests and therefore discussed the challenges of priority and enforcement of security interests. The study found the asymmetric relationship between perfection and priority of security interests as unsatisfactory. It found that the existing rules of priority is complex, cumbersome and is not conducive to emergence of asset securitization. The study also discussed enforcement of mortgages and charges, the security interests found by the study to be relevant to asset securitization. The various challenges of enforcement of security interests like abuse of interlocutory injunctions and preliminary objections, recourse to court even in self-help remedies, undue delay and cost of enforcement, complex and cumbersome procedure for foreclosure and issue of agency of receiver/managers were highlighted and discussed. The relevant provisions of the Lagos State Mortgage and Property Law were also considered and while the study was critical of some of its provisions, it recommended some of it for adoption by other states. The legal frameworks for structuring asset securitization under the existing law were discussed as well as the challenges and risks attendant to asset securitization such as transfer of asset risk; re-characterization risk; insolvency/claw back risk; and risk of the underlying security. The possible legal and contractual means of mitigating the legal risks were discussed but were found unsatisfactory. The study therefore advocated the need for specific legal and regulatory frameworks on asset securitization as well as reform of the law on priority and enforcement of security interests. In addition, having found that enacting a law on asset securitization had to contend with the federal nature of the Nigerian Constitution given that different aspects of law applicable to asset securitization straddle legislative competence of both the federal and state legislature, the study advocated that asset securitization be made a distinct legislative item within the competence of the federal legislature.