SEC Releases Approved New rules and Amendments

Regulators
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May 30th, 2014 8.00AM/SEC


 

A.   RULE ON INFRASTRUCTURE FUNDS

 

1. DEFINITION

For the purposes of this Rule, unless the context otherwise requires-
“Hurdle Rate” means the minimum rate of return on investment necessary to cover all costs associated with the Fund;

“Infrastructure Capital Company” means a company or companies whether private or public that provides capital/funding primarily for infrastructure development;

“Infrastructure Company” means a company or companies whether private or public that has technical experience and expertise in infrastructure development and engages primarily in infrastructure development. This does not include any company that engages in infrastructure development as part of its corporate social responsibility;

“Infrastructure Fund” means a specialized Fund or Scheme that invests primarily (minimum 90% of scheme’s net assets) in the securities or securitized debt instrument of:

a)   infrastructure companies; or

b)   infrastructure capital companies; or

c)   infrastructure projects; or

d)  special purpose vehicles which are created for the purpose of facilitating or promoting investment in infrastructure, and

e) other permissible assets including revenue generating projects of infrastructure companies or projects or special purpose vehicles.

“Interval Period” means the period/interval of one month within which an Infrastructure Fund is open for purposes of redemptions and new subscriptions. An interval period may occur more than once in the life of an interval scheme;

“Interval Scheme” means a collective investment scheme that is close-ended but is made open-ended for an interval period within which redemptions may be made and new subscriptions received;

“Permissible Assets” means securities and/or securitized debt instruments of infrastructure capital companies, infrastructure companies, infrastructure projects, and infrastructure-related special purpose vehicles; it also includes completed and income generating infrastructure projects, infrastructure company projects and infrastructure special purpose vehicle;

 

“Other Permissible Assets” means money market instruments, fixed income securities and equities, convertibles including mezzanine financing instruments of companies engaged in infrastructure, infrastructure development projects, whether or not listed on a recognized stock exchange in.       

 

2.     Applicability

(1) The provisions of these rules shall apply to Infrastructure Fund constituted as collective investment schemes.

(2) All other provisions of these rules and regulations unless the context otherwise requires, shall apply to Infrastructure Schemes, trustees (as the case maybe) and Fund Management Companies.

Provided that all other relevant provisions of the Rules and Regulations particularly rules relating to Collective Investment Schemes shall apply to Infrastructure Funds and in the event of any conflict, the provisions of this part shall prevail.

 

3.     Eligibility criteria for Infrastructure Fund

(1) An infrastructure fund may be registered with the Commission where the Fund Manager has a minimum of two (2) key personnel having relevant experience in the infrastructure sector.

(2) An approval of registration may be granted under these Rules to an applicant proposing to establish an Infrastructure Fund where the sponsor or the parent company of the sponsor:

(a)  has been carrying on activities or business in infrastructure  financing sector for a period of not less than five years; and

(b)  fulfils eligibility criteria for registration as a fund manager as provided under these Rules.

 

4.   Conditions for Establishing Infrastructure Fund

(1)   An infrastructure fund may be an open or close-ended scheme with a minimum tenor of seven (7) years or an interval scheme with lock-in of five years and interval period not longer than one month as may be specified in the scheme information document.

(2) Units of an infrastructure fund may be listed on a recognized exchange, provided that such units shall be listed only after being fully paid up and provided also that this shall not apply to infrastructure funds that are established as private equity funds.

(3) Where an Infrastructure Fund is to be publicly offered it shall state an approximate time of listing and be allowed to buy back units of the scheme from the market up to 20% of the initial unit during the life of the fund.

(4) An Infrastructure Fund shall disclose the indicative portfolio of the Fund to its potential investors stating the type of assets the Fund would invest in.

 (5) An Infrastructure Fund shall disclose the minimum number of units an investor can subscribe for.

 

5.     Issuance of Units

An Infrastructure Fund may issue units to the investors, subject to the following conditions:

(a) The Fund Manager shall call for the unpaid portions depending upon the deployment opportunities;

(b) The offer document of the scheme shall disclose the interest or penalty which may be deducted in case of non-payment of call money by the investors within the stipulated time; and

(c) The amount of interest or penalty shall be retained in the scheme.

 

6.   Permissible investments

(1) An Infrastructure Fund shall invest at least 90% of its assets in the securities or securitized debt instruments of infrastructure         companies or projects or special purpose vehicles which are created for the purpose of facilitating or promoting investment in infrastructure in respect of revenue generating projects of infrastructure companies or special purpose vehicle.

(2) Subject to sub (1), an Infrastructure Fund may invest in equities, convertibles including mezzanine financing instruments of companies engaged in infrastructure, infrastructure development projects, whether or not     listed on a recognized stock exchange in Nigeria; or money market instruments, structured loans and bank deposits for liquidity purposes to cover costs and/or other expenses associated with the Fund operations.

(3) The investment restrictions shall be applicable throughout the life-cycle of the Infrastructure Fund and shall be reckoned with reference to the total amount raised by the Fund.

(4) An Infrastructure Fund may invest up to 70% of its net assets in the securities or assets of any single infrastructure company or project or special purpose vehicle which is created for the purpose of facilitating or promoting investment in infrastructure in respect of revenue generating projects of any single infrastructure company or project or special purpose vehicle.

(5) An Infrastructure Fund shall not invest more than 30% of its net assets in debt instruments of any single infrastructure company or project or special purpose vehicles which is created for the purpose of facilitating or promoting investment in infrastructure in respect of completed and revenue generating projects of any single infrastructure company or project or special purpose vehicle, which is rated below investment grade or unrated;

Provided that such investment limit may with good cause, be extended up to 50% of the net assets of the scheme, with the prior approval of the Trustees, the Fund’s Investment Committee and the board of the Fund Manager as applicable.

 Provided, that the provisions of sub 4 and 5 shall not apply where a fund was established for a specific project, company or purpose.

(6) An Infrastructure Fund shall invest not less than 80% of its net   assets in infrastructure companies, infrastructure capital companies          and infrastructure projects of special purpose vehicle in Nigeria.

(7) No Infrastructure Fund shall invest in:

(i)     Any unlisted security of the sponsor, Fund Manager or its  associate or group company;

(ii)    Any listed security issued by way of private placement   by the sponsor, Fund Manager or its associate or group  company;

(iii)   Any listed security of the sponsor, Fund Manager or its associate or group company in respect of completed and revenue generating projects of infrastructure companies or special purpose vehicles of the sponsor or its associate or group companies, in excess of 25% of the net assets of the scheme, subject to approval of the Trustees and full disclosures to  investors for investments made within the aforesaid limits.

 

7.        Valuation of assets and declaration of net asset value

(1) The assets held by an Infrastructure Fund shall be valued “in good faith” by the Fund Manager on the basis of appropriate valuation methods based on principles approved by the Trustees.

(2) The valuation shall be documented and the supporting data in respect of each security so valued shall be preserved at least for a period of seven (7) years after the expiry of the scheme.

(3) The methods used to arrive at values ‘in good faith’ shall be periodically reviewed by the Trustees or Fund Manager, and annually by the statutory auditor of the Fund.

(4) The valuation policy approved by the board of the Fund Manager shall be disclosed in the Fund information document.

(5) The net asset value of every Infrastructure Fund shall be calculated and declared semi-annually.

(6)  The valuation parameters such as interest rate, inflation, GDP growth, forex rate, etc shall be disclosed to the investors annually;

(7)  The fund shall engage a SEC registered consultant to value the assets semi-annually.

The consultant shall be replaced every three years as a matter of good corporate governance practices.

 

8.        Fees and Expenses

Management fees: shall not exceed 2% per annum of the assets under management.

Performance fee/carried interest/incentive fee: may only be charged once the fund has delivered the hurdle or base rate of return disclosed. This shall not exceed 20% of the profit generated by the Fund in excess of the hurdle rate.

 

9.        Duties of the Fund Manager 

The duties of the fund manager of an Infrastructure fund shall be as prescribed by these Rules and in addition include the following:

(1) Laying down an adequate system of internal controls and risk management.

(2) Exercising due diligence in ensuring the maintenance of the assets of an Infrastructure Fund and shall ensure that there is no avoidable deterioration in its value.

(3) Recording the details of its decision making process in buying or selling infrastructure companies’ assets together with the justifications for such decisions and forwarding same quarterly to the Trustees.

(4) Ensuring that investment of funds of the Infrastructure Fund is not made contrary to provisions of these Rules and the trust Deed (or other constituent document of the Fund).

(5) Obtaining, wherever required under these Rules and Regulations, prior in-principle approval from the recognized exchange(s) where units are proposed to be listed.

(6) Instituting such mechanisms as to ensure that proper care is taken for collection, monitoring and supervision of the assets by appointing a service provider having extensive experience thereof, if required.

 

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