Section 271 Investments and Securities Act

Section 271 of the Investments and Securities Act 2025 is about Restriction on raising of funds from the capital market. It is under Part XVI (Issuance of Securities) of the Act. It provides as follows:

(1) A body to which this Part applies shall not issue securities to the public except in accordance with the provisions of this Act and the rules and regulations made under it.

(2) An application to issue securities under this Part 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 and 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 securities specifying, in the case of general obligation debt securities, that a sinking fund to be fully funded from the revenue fund account of the issuer shall be established and that funding required for the sinking fund shall constitute a charge on the revenue fund of the issuer,
(ii) a copy of a rating report by a rating agency registered or recognised by the Commission,

(iii) in the case of general obligation debt securities, 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, and
(iv) an irrevocable letter of guarantee issued by the bank or acceptable third party with at least the minimum investment grade rating, committing to provide such funds as may be required to meet the principal and interest obligations in favour of the trustees where a general obligation bond is not fully or partly backed by a charge on the internally generated revenue of the issuer or an irrevocable letter of authority as specified in subparagraph (iii);

(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 shall be established and that funding required for the sinking fund shall constitute a charge on the revenue fund of the State,

(ii) a copy of a rating report by a rating agency registered or recognised by the Commission,
(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, as the first line charge to meet its payment obligations, and

(iv) an irrevocable letter of guarantee issued by the bank or acceptable third-party with at least the minimum investment grade rating, committing to provide such funds as may be required to meet the principal and interest obligations in favour of the trustees where a general obligation bond is not fully or partly backed by a charge on the internally-generated revenue of the issuer or an irrevocable letter of authority as specified in subparagraph (iii);

(c) in the case of a Federal or State Government agency —
(i) a copy of the law or instrument establishing and authorising the agency to issue the securities,

(ii) an irrevocable letter of guarantee of repayment of the obligation, issued by the Federal or State Government that owns the agency or company provided that the provisions of this section would apply in the case of a State Government, and
(iii) where applicable, an irrevocable letter of guarantee of repayment of the obligation, issued by an acceptable third-party committing to be liable for the repayment of the principal and interest in the event of default; and

(d) in the case of project-tied debt securities —
(i) an irrevocable letter of consent by the banker to the project on the funding of the debt service reserve account or sinking fund to be established to meet maturing principal and interest obligations from the accruing project cash flows,

(ii) a copy of a rating report by a rating agency registered or recognised by the Commission, and
(iii) an irrevocable letter of guarantee of repayment of the loan issued by an acceptable third-party committing to be liable for the repayment of the principal and interest in the event of default.

(4) The Commission may, in addition to conditions prescribed in subsection (3), 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 sinking 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 —
(a) reprimand;
(b) publication in the national dailies; and
(c) 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% 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 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, they shall be subject to the regulatory requirements relating to secondary market transactions.

(10) Any amount deducted under the provisions of this section shall be credited into the sinking fund established under section 289 of this Act for the purpose of redeeming the outstanding obligation.

(11) A copy of any irrevocable letter of authority issued under the provisions of this section shall be lodged with the trustees appointed under section 283 of this Act.