The Nigeria Sovereign Investment Authority, NSIA, statutory fund manager for Nigeria’ s sovereign wealth fund, SWF, is working out arrangements for a monoline insurance system that will enhance the credit worthiness of investments and the flows of foreign portfolio and direct investments into the country.
Monoline insurance refers to provision of guarantees against defaults in a financial or investment transaction. It makes use of credit wraps to enhance the creditworthiness of an issuer or an investment project. Credit wrap, a form of financial guarantee, specifically insures a stated well-identified part of a transaction, thus the use of multiple credit wraps to cover as many parts of a transaction that may be required.
Managing Director, Nigeria Sovereign Investment Authority, NSIA, Mr. Uche Orji, at the weekend disclosed that the sovereign fund manager was putting together a monoline insurance arrangement that could perform roles similar to credit guarantee and enhancement companies.
He said while the law setting up NSIA does not allow it to perform the functions of credit enhancement, the sovereign fund manager is working around the statutory limitation through monoline insurance to enhance the attractiveness of Nigerian investment proposals being promoted by the NSIA to other sovereign wealth funds and fund managers.
Credit enhancement generally refers to a process of reducing default risk or loss through a counterparty guarantee by an unrelated party or a related provision within the transaction. Credit enhancement provides comforts to most foreign investors against domestic risks, especially in emerging economies. This increases chances of fund raising and success for the transaction. Nigeria has neither a stand-alone monoline insurer nor a credit enhancement company.
Orji said the NSIA combines the role of a sovereign fund manager with that of national investment promotion thus the need to put in place best practices that meet the stringent structural and procedural requirements of other sovereign wealth fund managers.
He hinted that NSIA was discussing with other fund managers on some landmark investments in the country.
He outlined that NSIA’s investments would in the meantime revolve around opportunities in housing, health care and transport sectors highlighting signal investments to possibly include toll roads and bridges.
He pointed out that the development of credit guarantee would boost the development of the Nigerian capital market, which would have multiplier effects on all stakeholders.
Information from The Nation was used in this report.