‘Sovereignty Waiver: China Can Only Take Over Assets, Built With The Loans’

Professor Uche Uwaleke

Professor of Capital Market at the Nasarawa State University, Keffi and a Fellow of the Institute of Chartered Accountants of Nigeria, Uche Uwaleke has said that China could only take over a country’s assets, built with the loans, which served as Collateral Security.

Prof. Uwaleke said, the clarification was necessary so that Nigerians are not misled with respect to the ‘sovereignty waiver’ clause in the country’s loan agreement with China.

He noted that “the relevant clause usually invoked in the event of default relates to waiver of commercial sovereignty which is a standard clause in bilateral loan agreements of this type.

“This, in no way, tantamounts to waiver of Diplomatic Sovereignty which borders on the independence of the country in question.

“As a non-aligned Creditor Country, not belonging to the Paris Club of creditors, China needs such a sovereign guarantee in bilateral commercial deals to facilitate enforcement of loan terms,” he said.

The Capital Market guru said, “Nigeria is not at risk of default with respect to credit facilities from the China EXIM bank considering that the entire $3.1 billion owed the bank as disclosed in the DMO March 31 2020 Nigeria’s public debt report, represents less than 4% of the country’s total debt stock of about $79 billion.

“In any case, adequate provisions have been made in the MTEF for the servicing of public debts the bulk of which, about 65%, is domestic debt.

“Unlike Eurobonds which constitute circa 40% of the country’s external debt and contracted on commercial terms, China loans are largely concessional.

“Currently, and to my knowledge, Nigeria is enjoying facilities from China EXIM Bank at 2.5% for 20 years with 7 years moratorium.

“Like Infrastructure bonds such as Sukuk, they are project-tied.

“In addition, the money goes straight to the Chinese firms handling the projects thereby minimizing the likelihood of diversion.

“I think this funding model suits our infrastructure development needs at this critical time and should not be jettisoned,” he said.

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