The National Pension Commission (“PENCOM” or the “Commission”) in a circular with Reference number PENCOM/TECH/ISD/2024/402, dated October 23, 2024 addressed to Managing Directors and Chief Executives Officers of all Licensed Pension Fund Administrators (LPFAs), warned the LPFAs to desist from investing in Commercial Papers where non-bank capital market operators act as Issuing and Placing Agents (IPAs), pending the issuance of guidelines or regulations by the Securities and Exchange Commission (SEC).
In response to this, the SEC, unveiled the proposed New Rules on Issuance of Commercial Papers and Amendment to Rule 8 (Exemptions) of the SEC Rules 2013 (the “Proposed New Rules”) aimed at establishing a clear regulatory framework for the issuance of Commercial Papers in Nigeria.
Following the above, on December 3, 2024, PENCOM, in a circular referenced “PenCom/TECH/ISD/2024/403”, announced the removal of the restriction earlier placed on investment of pension funds in commercial papers.
PENCOM'S Additional Guidelines for Investments in Commercial Papers
Following the circular (Ref: PenCom/TECH/ISD/2024/403) issued by PENCOM on December 3, 2024, lifting the restriction on investments in Commercial Papers (CPs) by LPFAs while emphasizing the importance of due diligence in evaluating prospectuses and offer documents, and in line with the Commissions commitment to strengthening risk management practices for pension fund investments, the following additional guidelines must now be adhered to when investing in CPs:
1.Minimum Credit Rating Requirement
Pension funds may only invest in CPs issued by corporate entities with a minimum credit rating of ‘A’ from a recognized rating agency.
2.Exceptions for Lower-Rated Entities
CPs issued by corporate entities with a credit rating of ‘BBB’ may be considered if the CPs are backed by one of the following guarantees:
a.An agency supported by a sovereign entity;
b.A Multilateral Development Finance Organisation (MDFO) with a minimum credit rating of ‘A’; or
c.A Commercial Bank with a minimum credit rating of ‘A’.
LPFAs are required to implement robust internal controls and maintain comprehensive documentation to demonstrate compliance with these investment guidelines.