Mauritius?

LEGAL

TAX HAVENS

Tokunbo Orimobi @ 40

2019

GN VOL 3 2019

An Investor’s Guide

Multi-Jurisdictional SWOT

EVENTS + CAPITAL MARKETS + MINING + OFFSHORE INVESTMENTS + REAL ESTATE

Our strength and expertise in several areas of practice such as Advisory, Banking & Finance, Corporate & Commercial, Company Secretarial Services,

Energy, Power & Natural Resources, Infrastructure & Project Finance, Litigation & ADR, Private Equity & Venture Capital, Securities, Mergers & Acquisitions, Real Estate, Regulatory Compliance,

Taxation & Consulting, has earned us a global recognition for what we do.

info@tolegalgroup.com www.tolegalgroup.com

(2019)

(2019)

I welcome you to the 3 edition of Tokunbo rd

Orimobi 's annual economic outlook publication - Gnosis. The launch of this edition coincides with our 40 anniversary th

at Tokunbo Orimobi. On January 12, 1979, the foundation of Nigeria's first global law firm was laid. From a small boutique law firm in Lagos in 1979, we have grown to become with offices in a global law firmAbuja, Ibadan, Lagos, London, New York, Port Harcourt, Port Louis and Pretoria.

Gnosis is an intellectual pack that x-rays v a r i o u s e c o n o m i c i s s u e s o f o u r contemporary time. This edition is the first of its kind to focus on macro-economic, investment and business issues in Nigeria, Mauritius, South Africa and USA. It is indeed, our first truly international economic outlook publication as previous editions focused primarily on Nigeria. As a global law firm practice with a track record of over 40 years, there is no better time to launch an international publication. This, we have achieved with the 2019 edition of Gnosis. This 3 edition aims to provide well rd

thought-out and well-researched insights on various sectors of the global economy to wit; events, capital markets, mining, offshore investments and real estate.

THE EDITOR-IN-CHIEF'S NOTE

The aforementioned sectors constitute a decent chunk of investment and business activities globally and would therefore, be the primary focus of this edition of Gnosis.

Gnosis would be distributed globally. We thank our contributors immensely for their efforts and support towards actualising this edition. Tokunbo Orimobi, as a global law firm, is committed to contributing to discussions and debates on the global economy. We hope that you will enjoy every article contained in this edition.

THANK YOU!

MICHAEL ORIMOBI TOKUNBO ORIMOBI LEGAL GROUP

GLOBAL CHAIRMAN

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Michael is an ingenious and astute commercial lawyer with years of experience in capital markets, M&A and finance. He holds a Bachelors degree in Law (LLB) from the University of Lagos and has been called to the Nigerian Bar. Furthermore, he has a Masters degree in Commercial Law (with emphasis on Corporate Finance law, I n t e r n a t i o n a l C o m m e r c i a l T a x , International Intellectual Property Law and C o r p o r a t e G o v e r n a n c e ) f r o m t h e University of Cambridge.

He started his career as an investment banker and was involved in structuring several Nigerian and Cross-border commercial transactions, such as Financial Analysis and Valuation of Companies, Mergers & Acquisit ions, List ing of Companies on the Niger ian Stock Exchange, Core Investor Sale, Privatization & Commercialization, Balance Sheet Restructuring, Corporate Restructuring, Issuance of Equity, Debt and Hybrid Instruments (Private Placements, Special Placings, Public Offers) and Foreign Direct Investments.

He is currently the Global Chairman of the Tokunbo Orimobi Legal Group – a global law firm with offices in Abuja, Ibadan, Lagos, London, New York, Port Harcourt, Port Louis and Pretoria. Michael doubles as the Managing Partner of the Group's Nigerian Practice - Tokunbo Orimobi LP. Michael, in the course of his legal career, has been able to perfectly combine his legal background with his investment banking experience in proffering highest quality legal advisory services to clients.

Michael is ranked as a Leading Lawyer for Capital Markets Deals in Nigeria by the IFLR1000, emerged as Lawyer of the Year, Nigeria & Leading Adviser, Nigeria in the ACQ Global Awards and was awarded Marketing Law with Accolades Award in the 2016 DealMakers Country Awards. Under his tenure as Managing Partner of Tokunbo Orimobi LP, the law firm has won several awards such as Recommended Firm for Financial and Corporate Deals 2019 - IFLR 1000; Capital Markets Law Firm of the Year, Nigeria – 2018 Corporate Int'l Magazine Global Awards; Corporate Finance Law Firm of the Year, Nigeria – 2018 Corporate Int'l Magazine Global Awards; Banking & Finance Law Firm of the Year, Nigeria – 2017 Corporate Livewire Finance Awards; Most Innovative Law F i r m , N i g e r i a – 20 1 6 A c q u i s i t i o n International Magazine Awards; Corporate Finance Law Firm of the Year, Nigeria - 201 5 DealMakers Country Awards; Regulatory Compliance Practice of the Year, Nigeria, Dispute Resolution Law Firm of the Year, Nigeria & Best Commercial Law Firm of the Year, Nigeria - 2015 Acquisition International M&A Awards; Full Service Law Firm of the Year, Nigeria, Project Finance Firm of the Year, Nigeria & Litigation Law Firm of the Year, Nigeria - 2014 ACQ Global Awards etc.

He is a member of the Nigerian Bar Association and the International Bar Association.

CONTRIBUTORS

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CONTRIBUTORS

Kayode Falowo is an astute Investment Banker with over 30 years banking experience and a distinguished Fellow of the Chartered Institute of Stockbrokers. He is the Founder and Group Managing Director of Greenwich Trust Limited. He serves as the Chairman, Board of Directors of the following companies:- Greenwich Registrars & Data Solutions Limited, GTL Trustees Limited and Meyer Plc. Kayode is the current Deputy President of the Nigerian-British Chamber of Commerce, and also holds membership of the Lagos Chamber of Commerce and Industry, Nigeria-South African Chamber of Commerce, and the Nigeria-Malaysia Business Council. He has previously served as Chairman, Association of Issuing House of Nigeria; Council member, Nigerian Stock Exchange; Member, Technical Committee of the Bureau of Public Enterprise (BPE); and Member, Presidential Advisory Committee on the Nigerian Capital Market

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Wouter overseas a vast portfolio of High C o u r t l i t i g i o u s m a t t e r s . H e h a s distinguished himself as a talented young litigator and commercial attorney, who by virtue of his diligence and passion for the law, has been successful against large firms. In addition to assisting clients with t h e i r l e g a l i s s u e s , W o u t e r e n j o y s understanding clients' business goals and places great value on relationships with clients. His verve and dedication are evident through the outcome of his work.

His practice areas are Commercial & Corporate Law, Company Secretarial Services.

He is a Partner in Tokunbo Orimobi's Pretoria Office.

CONTRIBUTORS

Elmien (WJ) du Plessis is an Associate Professor in the Faculty of Law at the North-West University, South Africa. She holds BA (International relations), LLB and LLD degrees from the University of Stellenbosch. She obtained her doctorate on Compensation for Expropriation under the Constitution in 2009.

She is interested in property law issues, especially in the land reform context, and has published numerous articles and chapters in this area. She is an NRF Thuthuka grant-holder. She has a passion for finding the human element in law, and likes to ensure that legal rules make sense in the real world. When she is not busy thinking about property law and its impact on society, she tries to apply property theories to her three offspring and their struggles over scarce resources.

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Rizwana is a Director at Tokunbo Orimobi (Mauritius). She is a qualified barrister, was called to the bar of England and Wales in 2002 at the Middle Temple and called to the bar in Mauritius in 2003.

She counts several years of experience in offshore structuring and administration and she currently leads a team of p r o f e s s i o n a l s i n v o l v e d i n t h e administration of various global funds, companies and trusts. The combination of her experience in professional practice and in general management provides her with the requisite experience for advising international businesses in tax-efficient corporate structuring and administration. She serves as director on the board of several companies and funds.

Rizwana is also member of the Mauritius branch of The Society of Trust and Estate Practitioners.

CONTRIBUTORS

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Dave is an intel l igent, easy-going, humorous, and inspiring leader who prides himself on being a modern “Renaissance M a n ” . H i s s t u d i e s h a v e i n c l u d e d engineering, psychology, philosophy, finance/marketing, and law. He has worked for some of the best houses on Wall Street, from compliance at HSBC to securities and derivatives positions at Barclays, Credit Suisse, Fifth Third Bank, and Morgan Stanley. He is an expert in Investment Banking, Compliance and Capital Markets, specifically securities and derivatives (with a heavy focus on ISDA Negotiations). He is well-read and well-practiced in Dodd-Frank, EMIR, Basal, and other similar regulatory regimes.

Dave holds both a Juris Doctorate (J.D.) and a Master of Laws (LL.M) from New York Law School. His LL.M degree was focused on Asset Management, Banking and Capital Markets. He is a member of the New York State Bar as well as the Greater New York Chamber of Commerce.

H i s i n t e r e s t i n b u s i n e s s l a w a n d entrepreneurship led h im to form Roemerman Law and his unique world-view enticed him to join the Tokunbo Orimobi Legal Group, proudly serving as its Global Managing Partner.

TABLE OF

CONTENTS

THE EVENTS INDUSTRY – TOO BIG TO FAIL?

CAPITAL MARKETS OUTLOOK

MINING IN SOUTH AFRICA - A REGULATORY OVERVIEW

MAURITIUS: BEST OF BREED FUND JURISDICTION

EXPROPRIATION WITH(OUT) COMPENSATION: THE SOUTH AFRICAN DEBATE

HOW MORTGAGES WORK IN THE US - THE BASICS

INSIDE TOKUNBO ORIMOBI

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15

21

24

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36

TOO BIG TO FAIL?

MICHAEL ORIMOBI

THE EVENTS INDUSTRY –

In a country of circa 200 million people, a country known for the slogan “suffering and smiling”- by the Late Fela Anikulapo Kuti, a country that has a reputation for an ostentatious culture, it is a no-brainer that the events industry is a rough diamond. It is also a no-brainer that investing in that industry may be more profitable than any get-rich-quick scheme. The richest people are those that can satisfy the daily needs of an average individual (food, shelter, clothing and maybe recently technology). People love events, people look for any excuse to throw a party, people liketo have fun (it is the only thing that can make people sane in a recession or in a volatile emerging market). Thus, it is a no-brainer to set up a business or be involved in any trade or activity that cashes in on this idiosyncrasy.

In most parts of the world, the hospitality industry has been a source of optimal returns for investors. In Nigeria, although t h e i n d u s t r y h a d b e e n overlooked in favour of more attractive industries like oil and gas, this has begun to change. In the spirit of diversification of the economy, the Nigerian hospitality industry looks set to be one of the fastest-growing in Africa. The events industry happens to be one of such dynamic and fast-growing s u b - s e c t o r s w i t h i n t h e hospitality value chain. Prof. O k o l i F i d e l i s C h u k w u m a h i g h l i g h t e d t h i s i n a n international peer-reviewed journal in 201 4, when he affirmed that events are the new trend in the hospitality industry. These events have taken the shape of flamboyant weddings, concerts, corporate eventsand even small private gatherings. I actually heard recently that someone had a

big party to celebrate a divorce – “people love to party”.

LET US LOOK AT SOME STATISTICS –

A. The events industry has grown at an average pace of 6.2% each year globally since 2003.

B. The Nigerian events industry is estimated to be among the most extravagant in the world. According to tns global, $17 million was spent on parties in lagos over a five months period in 2013. Statistics have it that an average Nigerian company or middle-class family spends over $15,000 per event.

C. Lagos State alone reportedly hosted over 20,000 events monthly in 2015 with expected e a r n i n g s f r o m t h e s e a m o u n t i n g t o o v e r $3,000,000,000 annually. Hardly does any week go by in lagos state alone without well over 2000 events happening including in remote locations.

D. Forbes reports that Nigerian elites spend an average of $2 m i l l i o n o n t h e i r d r e a m weddings.

F o r a n i n d u s t r y t h a t contributes conservatively over N100bn to the GDP of Nigeria annually and potentially has a b o u t N 1 t r n i n t u r n o v e r annually, it has indeed attained the status of “too big to fail”. T h e s u b - s e c t o r i s v e r y important to this economy! As the desire for glamorous and colourful events increases, you c a n o n l y i m a g i n e h o w exponential the contribution of this sub-sector to the nigerian e c o n o m y w o u l d b e . T h e government needs to take the sector more seriously. The players in that sub-sector need to take themselves more

seriously.

Some salient facts about the events industry –

A. The recent growth in the e v e n t s i n d u s t r y h a s c o n t r i b u t e d t o t h e spontaneous growth in many business verticals e.g. Event planning, venue, photography, food and many more services along this massive value chain.

B. One part of the events industry that has boomed s t e a d i l y i s e v e n t s m a n a g e m e n t / p l a n n i n g . Events Management is defined as the application of project management to the creation a n d d e v e l o p m e n t o f a ceremony.

C. Basically, there are two types of events, namely; corporate and social events. The social events are the most common - wedding receptions, funerals, concerts, product launches, naming ceremonies, birthdays, concerts, fashion shows, house warming etc.

D. By far, weddings are the most common in the events industry in Africa, especially N i g e r i a . A c c o r d i n g t o richeetech, about 30% of wedding budgets are spent on the reception nor wedding venue. Depending on the location, the average wedding budget in many cities in africa could be between $4,500 to $40,000. In lagos for example, depending on its location, size and features, wedding venues

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can go for anything from $1,000 to $20,000 per day.

E. Companies have, in recent times, begun using events as a k e y m a r k e t i n g a n d communication tool - product launches, press conferences, end-of-the year parties etc. C o m p a n i e s n o w c r e a t e promotional events to help c o m m u n i c a t e w i t h b o t h existing and potential clients.

If the above facts are correct, it goes without saying that, other things being equal, the players in the events industry are in the right industry.

There is a demand for the products/services.

Thus players in that industry have ticked an important box in terms of having a successful b u s i n e s s . W i t h s o m u c h potential in the industry, so m u c h d e m a n d f o r i t s products/services, with so much income/ liquidity in the sector, why hasn't this industry truly attained its rightful place as “too big to fail”? A few reasons –

A. It is not a very organized industry; particularly because there is no specific legislation regulating this sector of the economy. Because there are no s p e c i fi c l a w s , r u l e s a n d regulations governing this sector, it is like black market – you might be lucky to cash in or you might lose out. One of the complaints i have heard from customers/cl ients of this industry is the issue of liability. Who bears the risk when things go missing or are destroyed at an event? Who bears the liability when events do not go as plannedas a result of the negligence of vendors? Who c o m p e n s a t e s a customer/client in the case of a

natural disaster or terrorist attack in the course of an event?

Furthermore, when disputes arise between a professional in the events industry and a client, there are no regulations on the applicable dispute resolution mechanisms. How do the players in this industry seek redress for defaults or r e s o l v e t h e i r p r o b l e m s ? Remember that sometimes, the quantum of funds involved in these transactions do not make the regular court system a viable alternative.

We need specific legislations, rules and regulations to be enacted to guide this industry. The amount of liquidity in the events industry is too massive for it to be left unregulated.

B . T h e i n d u s t r y i s t o o fragmented. There are too many small players. One of the by-products of having too many small players in any industry is that it breeds cutting corners and sub-standard service. Players in the industry would begin to look for cheap ways to getting things done rather than adhering to e t h i c a l a n d p r o f e s s i o n a l standards of the industry. The industry needs to consolidate. Businesses in that sector need to merge and develop into big and robust organizations. Imagine, a full service events business that is a one-stop shop for clients – an events business that has different departments that cater for all areas in the value chain of the events industry without any need to outsource. From day 1, that business becomes the poster boy for how “events businesses should be run”. This increases clientele, income, market share, brand equity etc. Why would you want to own

100% of a N5m per annum business (turnover) when you can own 5% of a N10bn per annum business (turnover). The industry needs to begin to create businesses that can transcend generations. I look

stforward to seeing the 1 events business to be listed on the Nigerian Stock Exchange or the

st1 events business that will access the capital markets for funding.

There is an opportunity for the emergence of a real market leader in this industry. Merge a n d c o n s o l i d a t e y o u r businesses! Stakeholders in the industry need to grow their business to the point whereby cl ients come to them not because of “nepotism” or 'luck” or “referral” but because you are the biggest brand in the industry and they have no choice but to come to you (biggest brand in terms of income, branches, one-stop shop, employees etc.). There is power in size! Think big but smartly! For the already big players in the industry, start acquiring the smaller players – take them out - reduce your competition; for the smaller players, join a bigger platform in exchange for equity (don't be fooled by that fallacy that you are only happy or fulfilled when you run your own business. It is a lie!).

As mentioned earlier, the industry has a liquidity of about N1trn. Imagine, a player in the industry grows its business to capture just 1% of that liquidity ( i .e . N1 0bn). This can be a c h i e v e d w i t h p r o p e r restructuring of the businesses – the right advice is all that is needed. For any player in the industry , whose business doesn't generate at least N1bn in turnover (i.e. 0.1% of the conservative annual turnover

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ofthe industry), then you are joking! You haven't started! There is more you can do with your business.

C. the players in the industry need to take themselves seriously and see their business as a significant contributor to the Nigerian economy. A couple of players in this industry still conduct their business as a hobby or it is actually a hobby for them (something they do asides from their regular employment). While it is good t o h a v e a h o b b y , i t i s detrimental to conduct your business as a hobby.

Determine the vision, mission, core values and culture of your business. Put processes and procedures in place. Players in this industry must understand the significance of corporate and legal structure in business. Execute well-thought out and resourceful contracts between y o u r b u s i n e s s a n d y o u r customers/clients. This makes them take you seriously. In fact, some of the issues I alluded to above about the industry being not very organized, can be m i t i g a t e d b y p r o p e r contractual documentation for your activities/services. If there are no specific laws to guide you in the industry, create the laws that would guide your bilateral transactions via contracts.

Protect your business via written contracts, create a proper corporate structure for your business, adhere to the

simple principles of corporate governance (e.g. have a board of directors or advisors etc), retain a good audit & tax firm to examine your books annually and make your business tax efficient, retain a legal partner to mitigate your legal risks. Run a Business and not a hobby!

We need a new breed of players in the events industry. We need professionals that are not only r u l e d b y p a s s i o n b u t professionals that also realise they are running a business that must conform with the tenets of successful businesses. Passion should meet structure in the events world!

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KAYODE FALOWO

CAPITAL MARKETS

OUTLOOK

A review of the global economic performance in 2018 exposes three major themes; sustained decline in economic growth, effects of monetary policies on capital flow and impact of commodity prices

To start with, despite recent r e c o v e r i e s b y d e v e l o p e d economies like the United States of America, Japan and the United Kingdom over the last 2 years , growth has generally trended downward since the mid-2000s. We can attribute this long-term trend to aging workforces and slower productivity growth, which coincide with falling economic dynamism and rising market concentration. It is instructive to note that global growth has been largely influenced by two of the world's largest emerging economies: China and India.

Secondly, we have observed a measured return to monetary policy normalization by Central B a n k s i n t h e d e v e l o p e d markets, occasioned by the recent favorable labour market c o n d i t i o n s a n d a synchronization in global g r o w t h d r i v e n b y r i s i n g i n fl a t i o n . W e r e c a l l t h a t f o l l o w i n g t h e fi n a n c i a l meltdown of 2007/08, the United States Federal Reserve embarked on a quantitative easing cycle between 2009 -2014 to stimulate economic activity and boost liquidity. These policies have largely influenced the flow of capital between developed, emerging and frontier markets over the last decade.

Lastly, but by no means the least is the dynamics in the c o m m o d i t i e s m a r k e t particularly crude oil prices. This has had remarkable i m p a c t o n t h e g r o w t h trajectory of most of the world's

economies especially the oil producing and oi l export dependent nations. Just as the collapse in crude oil prices by 2016 led some countries into a recession and austerity, the rise i n t h e c o m m o d i t y p r i c e returned these nations to growth in 2017/2018.

According to the IMF, global growth in 2018 is expected to inch up to 3.9% from 3.8% earlier projected. The IMF also revised its growth forecast in Advanced Economies to 2.5% from an initial forecast of 2.0%, citing a stronger case for the Euro area and Japan which are expected to benefit from the spill-over of the expansionary fiscal policy in the United States.

Nigerian Operating Environment

T h e N i g e r i a n e c o n o m y continues to recover from the recession it slipped into in Q2 20 1 6 , r e c o r d i n g p o s i t i v e numbers since Q2 2017 with a tepid growth rate 0.7% year-on-year (y/y) which improved to 1.8% y/y in Q3 2018.

The early but weak recovery was largely aided by improved global oil prices and an increase i n N i g e r i a ' s p r o d u c t i o n volumes. While the rebound of t h e o i l s e c t o r t o g r o w t h

terr itory is laudable , the contraction of the non-oil sector reiterates the need to focus on divers ify ing the economy.

T h e r e b o u n d t o g r o w t h territory was also buoyed by the implementation of the Central Bank of Nigeria's ( C B N ) p o l i c i e s w h i c h commenced the convergence between exchange rate at the official window and the parallel market. One of such policies was the introduction of the Investors ' and Exporters ' window (NAFEX rate) which enabled an increase in foreign portfolio investments and effectively improved foreign exchange (FX) liquidity in the system. This policy contributed significantly to narrowing the difference between the parallel and official rates.

The upward trajectory in oil p r i c e s t o t h e h i g h o f US$79.80/b in H1 2018 was attributed to some key factors like the Organization of the P e t r o l e u m E x p o r t i n g Countries' (OPEC) agreed production cut deal of 1.8mb/d in December 2016 as well as unexpected supply disruptions i n Ve n e z u e l a , L i b y a a n d A n g o l a . T h i s i m p a c t e d positively on Nigeria's foreign reserves, r is ing 22.7% to US$47.6bn in June, 2018 from US$38.8bn as at December 2017.

Consequently, the CBN was f u r t h e r c a p a c i t a t e d t o maintain the official exchange r a t e r a n g e a r o u n d t h e N305.00-N306.00/US$1.00 in 2018, while the stability and l i q u i d i t y i n t h e f o r e i g n exchange market improved as w e r e c o r d e d g r o w i n g confidence by investors in the Investors and Exporters' (I & E) window in H1 2018 relative to

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FY 2017.Specifically, the activity level in the I & E foreign exchange window rose by 24.2% to U S $ 2 9 . 7 b n i n H 1 2 0 1 8 , representing 1.24x the entire v a l u e o f t r a n s a c t i o n (US$23.9bn) recorded since the inception of I & E window till D e c e m b e r 20 1 7 , w i t h a n average daily transaction of U S $ 2 4 7. 5 m i n H 1 2 0 1 8 compared to US$170.9m in 2017.

Meanwhile, headline inflation maintained a downward trend d e c l i n i n g f o r t h e 1 8 t h consecutive month to 11.1%y/y in August 2018 from a high of 18.7%y/y in January 201 7 driven by base effects and improved FX liquidity.

Nigerian Capital Market Review 2018

The equity market sustained its bull run from H2 2017 to Q1 2018, buoyed by improving macroeconomic fundamentals in the Nigerian economy. N o n e t h e l e s s , a b l e n d o f exogenous and domest ic headwinds in Q3 and Q4 2018 have exposed the fragility of the seemingly stable economy. A combination of a slowdown in g l o b a l g r o w t h , d e m a n d uncertainty, high production and skepticism about OPEC's resolve to curb output has raised questions about both short and long-term price stability. Brent crude price dropped to a year-low of U S $ 58 . 80 a t t h e e n d o f November, down 22% for the month, on fears that the world is oversupplied. C o n s e q u e n t l y , m a r k e t correct ions and externa l factors such as rising fixed income yields in developed m a r k e t s d u e t o p o l i c y normalization have affected the Nigerian equity market in

2018. Capital formation in markets is down 50.6% from N2 trillion as at Q3 2017 to N 991.67 billion in Q3 2018. The expanding economy in the US has seen the Dollar strengthen and US treasury yields rise, leading to huge outflows from m o s t e m e r g i n g m a r k e t s , including Nigeria. Locally, the current socio-p o l i t i c a l l a n d s c a p e w i t h elections on the front burner h a s c u r b e d l o n g t e r m investments in our equity m a r k e t s , a s f o r e i g n a n d domestic players have largely sat on the sidelines in search of new historical lows. However, our analysis on metrics and fundamentals using ratios such as the Earnings per Share (EPS) for stocks and the average EPS of the Index indicate that the fundamentals of the overall market remain strong.

Market Depth & Developments

It is not news that the Nigerian capital market is relatively less liquid and sophisticated than developed and other emerging markets. Successive Nigerian governments have made efforts at deepening the capital market through favorable fiscal and monetary policies, investor education, increased fi n a n c i a l i n c l u s i o n , a n d a d o p t i o n o f t e c h n o l o g y , regional market integration, more infrastructure spending, and liberalization of trade and forex flows.

In a bid to deepen the Nigerian Capital Markets, the Nigerian Stock Exchange (“NSE” or “Exchange”) and the Central Securities Clearing System Plc (“CSCS”) in conjunction with the other market operators r a i s e d c a p i t a l f o r t h e establishment of a Central Counterparty Clearing House

( “ C C P ” ) i n N i g e r i a t o intermediate in the sale and p u r c h a s e o f d e r i v a t i v e securities and commodities in the Nigerian Capital Market. This landmark achievement will have significant impact on the market in 2019 by providing the following:

Improved Efficiency/Depth of the Financial Markets�A Hedging Mechanism for financial instruments�Enhanced Market Competitiveness�Price Discovery Enhancement�Arbitrage Opportunities�Risk Management ToolsMonetary Policy Insulation

New Regulations

In a bid to boost stock market liquidity and transparency, the N S E i m p l e m e n t e d t h e amended Pricing Methodology and Par Value Rules of the Exchange on the 29th of January 2018. The Exchange observed that because the minimum share price for all s e c u r i t i e s l i s t e d o n T h e Exchange was fixed at N0.50, t h e r e w a s a n i m p l i c i t relationship, although not causal, between its Par Value and Market Value. The artificial fixing of the minimum price of shares also negatively affected trading activities on low priced stocks as they were perceived to be dormant, due to the static and unchanging status of the prices.

The amended Par value and new pric ing methodology allowed stocks to trade below the previous minimum trading p r i c e c a p o f N 0. 50. T h e objective of this development

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by the NSE was to free up liquidity in the market and offer investors an opportunity to use this additional liquidity for o t h e r i n v e s t m e n t s . T h e Insurance counters and other penny stocks bore the brunt of this new regulation with huge slumps in their respective market capitalizations. In our view, the amended pricing methodology has improved the efficiency of the equity market by narrowing the bid-ask spreads to significantly reduce t r a n s a c t i o n c o s t s a n d opportunit ies for market manipulation on low priced stocks.

Impact of Pension Multi-Fund Structure on the Equity Market.

In 2018, the National Pension C o m m i s s i o n ( P E N C O M ) r e l e a s e d t h e A m e n d e d Regulation on Investment of Pension Fund Assets for the Pension industry. The new guideline introduced a multi-fund structure that replaced t h e e x i s t i n g s i n g l e f u n d structure that classified all contributors into a Retirement S a v i n g s A c c o u n t ( R S A ) without consideration for the age or risk profile of such contributors. The multi-Fund Structure was implemented in June 2018 and the structure i n v o l v e d t h e c r e a t i o n o f multiple RSA Funds, with respective assets allocation, made to fit into the different demographic (age) profiles and risk appetites of registered contributors i.e. young, middle-age and retirees. Summarily, t h e c u r r e n t m u l t i - F u n d structure permits contributors b e l o w t h e 4 9 - y e a r a g e threshold to opt for a fund basket with greater allocation to asset classes with higher returns e.g. listed shares.The inclusion of additional pension funds in the market is

expected to s ign ificant ly improve the much-needed liquidity in the equities market. While flows improved in the early months of the year, a run on stocks since May 2018 has seen PFAs sit on the sidelines to the benefit of fixed income instruments.

Capital Market Outlook for 2019

In 2019, we expect a tale of two h a l v e s f o r t h e d o m e s t i c economy, hinged on internal factors in H1 2019 and external factors in H2 2019.We expect fiscal policy to loosen up in Q1 2019 due to scheduled elections, as government's budgets have historically been more skewed to recurrent expenditure, which makes a scale back in capital spend more convenient in a bid to control the increasing fiscal deficit. With plausible currency weakness, the need to maintain a tight monetary policy stance will keep interest rates high, t h e r e b y p u t t i n g s o m e downward pressure on the real GDP. Nonetheless, we expect the Fast-Moving Consumer Goods (FMCG) and Services sectors to drive growth during the period, on account of a projected increase in disposable income and consumer spending. This should ultimately lift GDP growth during the quarter to the 2.5% - 3.0% range. As mentioned ear l ier , we envisage significant headwinds i n H 2 20 1 9 f r o m t i g h t e r monetary policy in developed markets due to Niger ia 's increased exposure to foreign debt. Further hikes to policy rates in the US, England and Japan could spur portfolio exits and/or a repricing of Nigeria's debt.I n s p i t e o f t h e l i n g e r i n g headwinds surrounding the Capital market, we still see

opportunities for growth in l i s t e d e q u i t i e s . S t o c k fundamentals remain resilient and earnings are relatively decent considering the current economic cycle. Relative to recent quarters, key metrics e.g. the Price-Earnings ratio (P/E) and Price-Book (P/B) valuations indicate the market is currently undervalued at current prices while Dividend yields are higher than historical averages.

In summary, we believe the equit ies market is s lowly approaching the oversold position and this presents a g o o d o p p o r t u n i t y f o r discerning investors to bargain h u n t c e r t a i n b e l l w e t h e r counters to include in their portfolios.

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A REGULATORY OVERVIEW

MINING IN SOUTH AFRICA -

WOUTER BOTHA

The mining sector is one of South Africa's oldest and largest industries and remains a critical component of the economy which contributes approximately 7% to the country 's gross domest ic product (“GDP”). Despite South Africa slipping into a technical recess ion after contracting by 0.7% in the second quarter of 2018, the mining and quarrying industry increased by 4.9% from the previous quarter led by the mining of metal ores including platinum group metals, copper and nickel.

The mining industry employs in excess of 460, 000 people, who work on approximately 1,700 operational mines. South Africa boasts of a total number o f 5 3 d i ff e r e n t t y p e s o f minerals. South Africa is the w o r l d ' s l a r g e s t c h r o m e producer, having delivered more than half of the global ore supply during 201 7 and is responsible for approximately 96% of known global reserves of platinum group metals. The country also accounts for 11% of the world's gold reserves and is one of the world's largest coal miners . Min ing current ly accounts for a third of all South Africa's merchandise exports.

Although South Africa remains one of the leading mineral exporting countries, the tenure of former-President Jacob Zuma and several g lobal economic factors have been n e g a t i v e l y a ff e c t i n g t h e c o u n t r y a n d t h e m i n i n g i n d u s t r y a c c o r d i n g l y experienced a decline over the recent years. The appointment of President Cyril Ramaphosa

in December 2017 sparked a return of foreign investors and the potential growth of the mining industry is once again something to look forward to. T h e i n c r e a s e i n m i n i n g contribution to the GDP is a good indicator for the sector against the background of political instability, a decline in gold prices and demand for platinum.

Investors could either see South Africa's mining sector as a ' s u n s e t i n d u s t r y ' overwhelmed by increasing o v e r h e a d s a n d p o l i t i c a l instability, or as an industry which experienced a new spark despite all the fluctuations and external factors. South Africa still has the world's richest reserves of mineral resources, which are ready to be exploited by companies, large and small. Some corporates are already doing so despite the plaguing factors affecting the sector, and if the threats can be e ff e c t i v e l y m a n a g e d o r reduced, even more will do so. Investment over the next few years could almost double in t h e a b s e n c e o f t h r e a t s according to the Minerals Council South Africa, which is a n o r g a n i s a t i o n t h a t represents more than 70 large, medium-sized, smal l and emerging mining houses (the “Minerals Council”).

REGULATORY FRAMEWORK

The mining sector in South Africa is mainly regulated by the Mineral and Petroleum Resources Development Act 28 of 2002 (“MPRDA”),which regulates the state's control of the granting, exercising and

retention of all rights to mineral and petroleum resources, the N a t i o n a l E n v i r o n m e n t a l Management Act 107 of 1998 (“NEMA”), which serves as the umbrella legislation for all e n v i r o n m e n t a l - r e l a t e d matters in South Africa, the B r o a d - B a s e d E c o n o m i c Empowerment Act 53 of 2003 ( “ B E E A c t ” ) , w h i c h w a s established to provide for a broader legislative framework for the promotion of black economic empowerment and the National Water Act 36 of 1996 (“Water Act”), which specifically regulates the use of water for mining and related a c t i v i t i e s a i m e d a t t h e protection of the country's water resources.

The MPRDA repealed the old M i n e r a l s A c t 50 o f 1 9 9 1 (“Minerals Act”). One of the main differences between the Minerals Act and the MPRDA, is that mining rights were shifted from privatisation to state control. Accordingly, from the effective date of the MPRDA (May 1, 2004), all minerals vest in the state as custodian for the benefit of all South Africans and are subject to the state's power to grant or refuse rights to prospect for minerals and petroleum. Consequently, mineral resource owners were deprived of their basic right of control which they previously enjoyed.

Currently, there is a proposed draft Mineral and Petroleum R e s o u r c e s D e v e l o p m e n t Amendment Act which seeks to align the current MPRDA and NEMA to provide for a uniform environmental management system. On September 27,

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2018, the Minister of Mineral Resources (“the Minister”) also issued a new draft Broad-B a s e d B l a c k E c o n o m i c Empowerment Charter for the South African Mining and Minerals Industry (the “Mining Charter III”), which legislation will significantly impact the mining sector in South Africa.

Although previous drafts of the Mining Charter III were heavily opposed by various leaders in the industry including the Minerals Council, the latest draft of the Mining Charter III see the most controversial regulations of the previous drafts scrapped or watered d o w n , w h i c h r e fl e c t s a consensus among stakeholders after a period of endless discussions between all the different stakeholders.

The Mining Charter III is mainly aimed at distributing the industry's mineral wealth more equally among citizens after the injustices of the apartheid-era and seeks to strike a balance between improving transformation and ensuring the industry's viability in a volatile environment. Whether the aforementioned legislation wil l be subject to further amendments and when it would come into force, remains to be seen.

APPLICATION FOR A PROSPECTING OR MINING RIGHT

Any person wishing to apply for a prospecting or mining right in South Africa, must apply to the minister in terms of sections 16 and 22 of the MPRDA and must simultaneously apply for the

necessary env i ronmental authorisation. This application must be lodged at the office of the regional manager in whose region the land is situated in t h e p r e s c r i b e d m a n n e r together with the prescribed, non-refundable application fee.

The regional manager should accept the application if the requirements are complied with, i.e. the necessary water u s e a u t h o r i s a t i o n s w e r e granted, no other person holds a prospecting right, mining r i g h t , m i n i n g p e r m i t o r retention permit in respect of the same mineral on the same land and no prior application for a prospecting right, mining r i g h t , m i n i n g p e r m i t o r retention permit has been accepted for the same mineral on the same land, and which application has neither been granted or refused.

GRANTING AND DURATION OF A PROSPECTING RIGHT

In terms of section 17 and 18(5) of the MPRDA, the Minister must grant a prospecting right within 30 days of receiving the application from the regional manager if the applicant c o m p l i e d w i t h c e r t a i n prescribed requirements in terms of the MPRDA including

b u t n o t l i m i t e d t o t h e applicant's access to financial resources, its technical ability to conduct the proposed p r o s p e c t i n g o p e r a t i o n optimally and in accordance with the prospecting work programme, the estimated expenditure, duration of the p r o p o s e d p r o s p e c t i n g o p e r a t i o n a n d t h a t t h e prospecting will not lead to ecological degradation or c a u s e d a m a g e t o t h e environment.

The Minister has an obligation to refuse the granting of a prospecting right within 30 d a y s o f r e c e i p t o f t h e application from the regional manager if the applicant has failed to meet the requirements in terms of the MPRDA or if the granting of such right will result i n t h e a p p l i c a n t a n d i t s associated companies possibly limiting equitable access to mineral resources.

The Minister may impose such conditions as are necessary to promote the rights and interest o f a c o m m u n i t y i f t h e application for a prospecting right relates to land that is occupied by a community such as the participation of the community.

Any prospecting right remains subject to the MPRDA, any other relevant law and the t e r m s a n d c o n d i t i o n s stipulated in the right and is valid for the period specified in the right, which may not exceed 5 (five) years. A prospecting right may be renewed only once, for a period not exceeding 3 (three) years.

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GRANTING AND DURATION OF A MINING RIGHT

Section 23 and 24(4) of the MPRDA deals with the granting and duration of a mining right. These sections essentially specify the same requirements relating to the granting of a prospecting right that the Minister must consider.

A mining right is valid for the period specified in the right, which may not exceed 30 (thirty) years and may be renewed for further periods, each of which may not exceed 30 (thirty) years at a time.

LEGAL NATURE OF PROSPECTING, MINING, EXPLORATION OR PRODUCTION RIGHTS

Section 5 of the MPRDA states that the holders of the above rights (prospecting, mining, exploration or production) may, together with their employees enter the land in q u e s t i o n , b r i n g p l a n t , machinery and equipment onto the land in question, build, c o n s t r u c t o r l a y d o w n infrastructure required for the purposes of prospecting and mining, prospect and mine, use water and develop boreholes a n d c a r r y o u t a c t i v i t i e s incidental to prospecting, m i n i n g , e x p l o r a t i o n a n d production operations.

The aforementioned actions are subject to the holder inter alia being in possession of an a p p r o v e d e n v i r o n m e n t a l management programme or plan, being in possession of the necessary right and permits or permission and providing the

(repealed)https://www.gov.za/sites/default/files/a50_1991.pdfM i n i n g a n d P e t r o l e u m Resources Development Act 28 of 2002http://www.dmr.gov.za/Portals/0/mineraland_petroleum_resources_development_actmprda.pdf

- National Environmental Management Act 102 of 1998 https://www.gov.za/sites/default/files/a107-98.pdf

- National Water Act 36 of 1998http://www.dwa.gov.za/Documents/Legislature/nw_act/NWA.pdf

- Statistics South Africawww.statssa.gov.za

owner or lawful occupier of the land in question at least 21 (twenty) days written notice of its intended prospecting, mining, exploration and / or producing.

In terms of section 11 of the MPRDA, these rights may not be ceded, transferred, let, sublet, assigned, alienated or otherwise disposed of without the written consent of the minister or in the case of a change of controlling interest in a listed company.

The minister 's consent is d e p e n d e n t o n i n t e r a l i a whether the person who is receiving the right is capable of carrying out and complying with the obligations and the terms and conditions of the right in question and certain other provisions of the MPRDA. Any cession, transfer, letting, s u b l e t t i n g , a l i e n a t i o n , encumbrance by mortgage or variation of a right must be lodged for registration at the Mining Titles Office within 60 (sixty) days of the relevant action.

Sources:- Broad-Based Economic Empowerment Act 53 of 2003https://www.environment.gov.za/sites/default/files/legislations/bbbee_act.pdf

- Department of Mineral Resourceswww.dmr.gov.za

- Department of Water Affairswww.dwa.gov.za

- Minerals Act 50 of 1991

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1. Tokunbo Orimobi's Global Chairman, Michael Orimobi addressing the students of Obafemi Awolowo University, Ile-Ife, Osun State at Tokunbo Orimobi's Life After School Series2. Happy faces at Tokunbo Orimobi's Life After School Series at the Obafemi Awolowo University, Ile-Ife, Osun State3. Cross-section of students at the Tokunbo Orimobi's Life After School Series at Obafemi Awolowo University, Ile-Ife, Osun State4. Tokunbo Orimobi's Global Chairman, Michael Orimobi at the 2018 Young Wigs Conference in Port Harcourt, Rivers State 5. Tokunbo Orimobi's Global Chairman, Michael Orimobi with other Speakers and Special Guests at the 2018 Young Wigs Conference in Port Harcourt, Rivers State6. Tokunbo Orimobi's Global Chairman, Michael Orimobi, Lawritta Okereafor and Tare Olorogun of Tokunbo Orimobi at the Doing Business in Nigeria (DBN) Series - London 20187. Cross section of panelists and attendees at the Doing Business in Nigeria (DBN) Series - London 2018

8. Panelists – Omosuyi Fred-Omojole, Ijeoma Aluya, Michael Orimobi and Mayank Gupta – and guests at the Doing Business in Nigeria (DBN) Series - London 20189. Our Global Chairman, Michael Orimobi lecturing the Executive MBA Class at the Lagos Business School in 201810. Our Global Chairman, Michael Orimobi with the Executive MBA Class - 2018 at the Lagos Business School11. Staff of Tokunbo Orimobi on a visit to Hearts of Global Children's Hospice on St. Valentine's Day

. Staff of Tokunbo Orimobi donating gifts to the Hearts of Global Children's Hospice on St. Valentine's Day1213. Staff of Tokunbo Orimobi at the Erin-Ijesha waterfalls for a relaxation weekend in Osun State14. Our Global Chairman, Michael Orimobi with Victor Ndukauba – Deputy Group Managing Director of Afrinvest (West Africa) Limited - at the launch of the Afrinvest Banking Sector Report

15. Our Global Chairman, Michael Orimobi with Ike Chioke, Group Managing Director, Afrinvest (West Africa) Limited and Tony Owuye – Director, Personal Trust Microfinance Bank at the launch of the Afrinvest Banking Sector Report

Our Global Chairman, Michael Orimobi with delegates at the Africa Trade and Investment Global Summit (ATIGS) - Washington DC 201816.17. Our Global Chairman, Michael Orimobi with Wayne Sprauve – Chairman, African Premier Airlines - at the Africa Trade and Investment Global Summit (ATIGS) - Washington DC 201818,19, 20. TGIF @ Tokunbo Orimobi - Tokunbo Orimobi staff at the Baracuda Beach, Lagos21. Our Global Chairman, Michael Orimobi with Michael Nzewi - Managing Director, CardinalStone Partners Limited, Sanyade Okoli - Managing Director, Alpha African Advisory and Bamidele Sadiq-Abu - COO, Barclays Nigeria - at the 2017 end of the year staff Training/Panel Discussion at Tokunbo Orimobi 22. Cross section of staff and guests at the Staff Training/Panel Discussion at Tokunbo Orimobi23. Tokunbo Orimobi staff at the firm's Abuja Office in Maitama24. Tokunbo Orimobi staff at the 58th Annual Conference of the Nigeria Bar Association- Abuja 2018

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FUND JURISDICTION

RIZWANA AMEER MEEA

MAURITIUS: BEST OF BREED

The primary focus of fund managers is to efficiently deploy investment monies. It is thus crucial that a fund vehicle is domiciled in a jurisdiction that allows pooling of capital effectively and safely and the timely distribution to investors. Choosing the right financial center to domicile for your fund i s a l w a y s i m p o r t a n t b u t sometimes tricky. Given a choice, fund managers will generally seek out the most efficient, secure and reputable financial jurisdictions. Only the most efficient financial centers with a proper legal and fiscal framework are going to be selected and are able to meet the requ i rement of fund m a n a g e r s a n d t h e i r international in- vestment strategies. Mauritius satisfies the criteria for an efficient and s e c u r e fi n a n c i a l c e n t e r . Capitalising on its strategic location, it has forged itself as the fund juris- diction of choice for India and more recently for Africa.

Mauritius is a tax neutral jurisdiction, stable, secure and h a s g o o d t i e s w i t h a l l n e i g h b o r i n g e m e r g i n g jurisdictions as well investor jurisdictions. It boasts a large infrastructure of professional lega l , account ing , aud it , administration and fiduciary expertise, an in- dependent legal and judicial system, with a right of final appeal to the Privy Council of the House of Lords in England, a wide network of Double Taxation treaties, high-tech ICT connections – high communication speed and capacity, high bandwidth connectivity with Europe, Southeast Asia and Africa and

strategic time zone (GMT +4). It is has been voted first in Africa according to the World Bank “Ease of doing business” report for several consecutive years. Further, Mauritius's investment fund fee structure is competitive which ultimately benefits both the manager and the investor in regards to launch and ongoing expenses of the fund. Being a genuine and sound jurisdiction, it enjoys a good re lat ionship with international regulators and the FSC, the regulator is a m e m b e r o f I O S C O. I t i s currently on the OECD list of compliant jurisdictions and is vigorously pursuing expansion of its network of information exchange agreements with other countries.

Mauritius has a trusted legal and regulatory framework that is constantly being updated and innovated to ensure equivalence with international best practices and standards. Mauritius has been fine tuning i ts a l ter- nat ive d i spute resolution regimes of law, n a m e l y i n t h e fi e l d o f arbitration with the set-up of M a u r i t i u s I n t e r n a t i o n a l A r b i t r a t i o n C e n t r e . T h i s p r o v i d e s m u c h r e q u i r e d comfort to fund managers and investors towards protection of their r ights and that the financial center is a true fi n a n c i a l h u b . M u c h o f M a u r i t i u s ' s s u c c e s s i n attracting funds is also the fact that Mauritius Securities Law w h i l e b e i n g i n l i n e w i t h international norms and best standards does not impose onerous restrictions on a fund's i n - v e s t m e n t s t r a t e g y . Establishing a fund and related

functionary entities is simple. This allows fund managers a discretion and flexibility in the operation and structure of a fund.

A Mauritius fund as well as its f u n c t i o n a r i e s a s t h e investment manager or adviser can be set up as domestic or g loba l bus iness ent i t ies . Different categories of fund can be set up which may invest directly in securities or make use of SPVs for particular types of investments. In recent years there has been much more traction with our African counterparts with a surge in private equity and venture capital funds. Mauritius funds have attracted considerable c a p i t a l f r o m d e v e l o p e d fi n a n c i a l i n s t i t u t i o n s , institutional investors and H N W I s t a r g e t i n g i m p a c t investments or conventional private investments. It has been be- come the premier choice for these types of fund. It is useful to highlight that when l a u n c h i n g a f u n d , i t i s important to think of the end at the beginning. Ensuring an e ff e c t i v e e x i t i s c r u c i a l especially for private equity funds. Be it through a share sale, an IPO or merger and acquisitions, Mauritius affords the fund and its manager the flexibility to choose its exit

A Mauritius licenced fund can be structuredas corporate entity, a trust,a limited partnership or as segregated portfolio in the form of a protectedcell company.

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strategy within the framework of a flex ib le and modern legislation. Mauritius allows a licenced fund to list on the Mauritius Stock Exchange as well as have a dual listing. The attractive fiscal regime in Maurit ius is certain ly an important factor in attracting investment managers and funds. Mauritius has a wide network of double taxation treaties that offer investors the opportunity to effective tax planning and structuring of investments. There is no capital gains tax or withholding tax on d i v i d e n d s a n d c a p i t a l distributions. Mauritius also has a wide net- work of IPPAs w h i c h p r o v i d e s a d d e d protection to the funds with respect to their investments. As a dynamic and fluid financial juris- diction, Mauritius has a robust banking system with 21 banks made up of international and local banks. There are currently no exchange controls allowing the remittance of f u n d s e a s i l y s u b j e c t t o a p p l i c a b l e r e g u l a t o r y requirements. Mauritius continues to be a jur isdict ion of choice for investors who place increased emphasis on greater levels of transparency, third party service providers and rigorous d u e d i l i g e n c e o n f u n d documents and custody and administration arrangements. The fund model is a tried and tested one especially for those targeting India and/or Africa.

Today, fund managers wish to domicile their funds in a legal and regulatory environment t h a t s u p p o r t s d i v e r s e

investment strategies as well a s a q u i c k a n d n o n -b u r e a u c r a t i c f o r m a t i o n process.

Mauritius remains committedto attracting quality funds by offering political and economic stability, a sound legal system, a pool of professional service providers and an efficient regulatory framework of the investment industry that pro- vides transparency and disclosure.

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PROFESSOR ELMIEN (WJ) DU PLESSIS

EXPROPRIATION WITH(OUT)

COMPENSATION: THE SOUTH

AFRICAN DEBATE

portions of farms on which labour tenants have been residing for decades. The state will have to legislate on this, and legal certainty in this regard will most certainly boost investment confidence in South Africa. What is clear from the official documents is that there i s n o t a l k o f a b l a n k e t expropriation of all property or p r o d u c t i v e p r o p e r t y . Indications are that what is being discussed, is the addition of a few words in section 25(8) to read:

No provision of this section, O R T H E P A Y M E N T O F C O M P E N S A T I O N , m a y impede the state from taking l e g i s l a t i v e a n d o t h e r measures to achieve land, water and related reform, in order to redress the results of past racial discrimination, provided that any departure from the provisions of this section is in accordance with the provisions of section 36(1).

Such an amendment will not have a profound legal effect.

In South Africa there is a strict legal procedure that the expropriation must follow to keep the state's powers in c h e c k . T h i s m e a n s t h a t , although an owner does not have much choice in whether they are expropriated or not, the owner is protected in terms of the Constitution and in t e r m s o f l e g i s l a t i o n . Expropriation is an acceptable limitation on private property rights, and if done in terms of the ru le o f law w i th the provision for compensation, does not undermine the system of private property.The Constitution qualifies 'property' as not being limited

thto land.The ANC's 54 National Conference resolution on e x p r o p r i a t i o n a n d i t s

thAt its 54 National Conference, South Africa's ruling party; the African National Congress (“ANC”) stated that it regards expropriation of land without compensation as one of the key mechanisms available for government to give effect to land reform and redistribution. T h i s s t a r t e d a p u b l i c c o n v e r s a t i o n a b o u t t h e successes and failures on land r e f o r m , a n d t h e r o l e o f c o m p e n s a t i o n f o r expropriation in this debate. At the end of 2018, the governing party ind icated that the C o n s t i t u t i o n s h o u l d b e amended to make explicit what is regarded as being implicit in the Constitution: expropriation without compensat ion in certain circumstances. Elmien du Plessis, Associate Professor in Law at the North-West Univers i ty , d iscusses the condit ions that the ANC imposes on this expropriation without compensation, and give a prediction of how she thinks the legal process will proceed.

E x p r o p r i a t i o n i s a l e g a l mechanism that empowers only the state to acquire property for land reform (and other public) purposes. While the property usually vests in the state, it is possible that the s t a t e m a y t r a n s f e r t h e property to beneficiaries in terms of land reform (public interest).

From previous ANC policies and utterances by the President, it is clear that the ANC foresees that the land will be transferred to beneficiaries and not kept by the state (therefore, not nationalisation as the leftist Economic Freedom Fighters party (“EFF”) wants). The ANC foresees a mixture of private tenure, direct state ownership, trusts and communal tenure.

At this stage, it is still unclear who those beneficiaries will be and how they will be selected and supported. This is perhaps the most urgent policy that the ANC needs to finalise.

The power to expropriate is legitimate and enables the s t a t e t o a d d r e s s p u b l i c problems. In South Africa, our Constitution keeps this power in check. It does so, for instance, by requiring that expropriation be for a public purpose (such as building a road) or in the public interest (such as to transfer the land to a specific land reform beneficiary). There are strict procedural guidelines laid down in the Expropriation Act of 1975 that must be adhered to.

What is just and equitable in the land reform context has not been adequately tested in the C o n s t i t u t i o n a l C o u r t o r challenged by the state, mostly because the state has not expropriated any property for land reform purposes till date.

Since determining what is just a n d e q u i t a b l e r e q u i r e s weighing up the interests affected against the public interest (section 25(3) of the South African Constitution), the argument is that in some instances, balancing can rest on R0. This, however, is only f o r e s e e n i n v e r y l i m i t e d instances, such as in the case of abandoned, hi jacked and unmaintained buildings and

The South African compensation standard is 'just and equitable' compensation, not market value.While in many instances market value will be 'just and equitable', it could also be less, or even more,than market value.

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this is not what the ANC envisions.

The ANC does not currently have the required two-thirds major i ty in the Nat ional Assembly to pass the bill, so it would need the support of other parties. The EFF has been pushing for nationalisation, so it is uncertain that they would support the ANC in such a vote. The Inkatha Freedom Party (“IFP”) could only support the ANC if such a provision does not involve traditional land. The Democratic Alliance (“DA”) would not support such a motion. And since we are a democracy, the ANC cannot p u s h t h r o u g h s u c h a n a m e n d m e n t w i t h o u t t h e needed support. In that sense, even if an amendment bill is drawn up, it is not clear whether it will be passed in parliament.

Once an amendment is passed in terms of section 74 of the Constitution, it cannot be challenged on the basis of u n c o n s t i t u t i o n a l i t y. T h e provision then becomes part of the Constitution itself, and the Constitution will then be read as a whole, with provisions read in harmony with one another.

Such an amendment, if that is the road that the ANC wants to embark on, is unl ikely to h a p p e n b e f o r e t h e 20 1 9 elections. The likelihood of the D e p a r t m e n t o f J u s t i c e introducing a bill before March 2019 is slim. And if it does, a bill usually takes six to nine months to be promulgated. This would take us to early 2020.

So, what should be done in the meantime? There is some good noise from the governing party that they wish to enact all legislation relating to land reform as a matter of urgency,

s u b s e q u e n t m o t i o n i n parliament to consider whether section 25 of the Constitution needs to be amended limits the discussion to the expropriation of land. This is one area where some clarity would be helpful.

What should be remembered is that expropriation as a method of acquisition is not an end in i t s e l f . W i t h o u t p r o p e r guidelines and policies to a n s w e r t h e ' w h a t a f t e r expropriation?' question, land reform will stagnate. This will lead to more frustrated people, and more land invasions will most probably follow to protest government inefficiency. This is not beneficial in any way. It is therefore in the interest of South Africa that land reform happens, and that it does so in a sensible and sustainable way and most importantly, within the rule of law.

This seems to be the plan of the ANC. The consistent message that has come through in

t heverything from the 54 National Conference through to a motion amended and accepted in parliament in February 2018, and utterances by President Cyril Ramaphosa, is that land reform goals must be carefully calibrated with the economy, food production, a g r i c u l t u r e , i n v e s t o r confidence, exposure of banks and emerging farmers. The President appointed an expert panel to advise him in this regard.

Any possible amendment of the Constitution needs to take place in terms of section 74 of the Constitution. This entails t h a t ( p r o b a b l y ) t h e Department of Justice needs to introduce a bill to amend the Bill of Rights. With the support of two-thirds of its members, the National Assembly needs to

pass this bill. The National Council of Provinces also needs to pass the bi l l , with the support of six of the nine provinces. It also needs to go through a public participation process.

There are also procedural requirements, of which the p u b l i c p a r t i c i p a t i o n requirement is perhaps the most important. If a bill is introduced to parliament, there will be another round of written comments on the amendment. The Constitutional Review C o m m i t t e e ' s p r o v i n c i a l h e a r i n g s a s w e l l a s t h e submissions made to this committee in parliament will not suffice for this purpose. The question currently before the Committee, namely whether the Constitution should be amended or not, differs from the issue that will be on the table with an amendment bill (that wi l l prov ide for an a m e n d m e n t ) . T h e Constitutional Court has been clear that the greater the public interest in legislation, t h e m o r e o n e r o u s t h e obligation to ensure public involvement.

Some commentators argue that expropriation without compensation goes against the f o u n d i n g v a l u e s o f t h e Constitution and therefore requires 75% support to be amended. One such instance will be if there is no recourse to the courts in the case of expropriation. But as shown above, it is not envisioned that there will be no recourse to the courts. Founding values will also be changed if there is an infringement of the rule of law, f o r i n s t a n c e i f a r b i t r a r y deprivation of property (i.e. deprivation without a legal reason, or that is not applicable generally) is allowed. Again,

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which will certainly provide some clarity and a framework on how to proceed. There is no reason why the state should wait for a possible constitutional amendment, to do what it is already empowered to do through legislation. An Expropriation Bill will hopefully give clear guidelines on which properties can be expropriated for R0, and how compensation should be calculated. This will streamline the expropriation process and provide greater certainty to land owners and investors.

From a civil society perspective, South Africans need to encourage government to start implementing the existing legislation, and to implement land reform in a sustainable manner, t a r g e t i n g b e n e fi c i a r i e s , a n d encouraging economic growth. This will happen if there is certainty and a clear plan, within the rule of law.

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IN THE US - THE BASICS

HOW MORTGAGES WORK

DAVID ROEMERMAN

When someone wants to buy a property to use as a home, they often cannot afford to simply pay full price and purchase the property outright. They can ask a bank or a mortgage company (a “lender”) to issue them a loan to purchase a property/home. The loan is sometimes referred to as a “mortgage,” though that is technically incorrect. The money issued is a “loan.” The borrower/purchaser/future homeowner often pays a certain percentage of the purchase price towards the home. This is called putting money “down” or making a “down payment.” The lender then finances the remainder of the home's price, paying the seller of the property and signing a “mortgage” with the homeowner. The mortgage is actually the legal contract for repayment, otherwise known as the instrument evidencing the debt. However, in common usage, the word “mortgage” can also be a verb, meaning to take a loan for a security a g a i n s t a p r o p e r t y ( t o mortgage), a noun describing the whole process (to obtain a mortgage), and an adjective (the mortgage market). In legal terms, the lender or party entitled to receive payments on a loan is called the “mortgagee” a n d t h e p a r t y m a k i n g payments, the homeowner, is referred to as the “mortgagor.” Often, the “sales contract” covers terms such as whether the seller or the buyer pays brokers' fees (generally 6% of the property price, with half going to the agent finding the buyer and half to the seller's agent), which party covers property and title inspections, and any other negotiable terms, while the mortgage deals only with the financial terms of the loan (including the sale price, the amount put

down by the homeowner, and the terms of repayment).With very few exceptions, when executing a mortgage, the homeowner signs a promise to pay (referred to as the “note” or “mortgage note”) promising to repay the mortgage according to the agreed upon terms and a l l o w i n g t h e l e n d e r t o “foreclose” upon the purchased property if the terms of the agreement are not met (which usually means non-payment according to the terms of the mortgage). “Foreclosure”, or “foreclosing upon”, a home simply means that the lender t a k e s o w n e r s h i p o f , o r possesses, the home in order to satisfy the remaining debt, unpaid by the homeowner. The lender, usually, then resells the home to recover its unsatisfied debt and any losses (usually unpaid interest). In purchasing a property, the homeowner is issued a “deed” evidencing the homeowner's ownership of the property or the existing deed is transferred from the seller. The v a s t m a j o r i t y o f U . S . jurisdictions require deeds and the mortgages pertaining to property to be “recorded” with local governments (usually counties/parishes). This simply means that the deed a n d t h e m o r t g a g e a r e registered with the local records department for later reference, if needed. This g e n e r a l l y a l l o w s a n y o n e interested in a certain property to quickly and easily determine its legal owner and any claims against the property, such as any mortgages or other liens. This system of recording is also important as a way to protect different parties' interests in the property and, if necessary, to determine – often in court, which parties' rights are to be enforced. However, if the mortgage note is not contained within the mortgage, most

jurisdictions require these p r o m i s e s t o r e p a y t h e mortgage to be recorded.Thus, to give an overview, purchasing a property using a mortgage requires:1 . A s a l e / p u r c h a s e o f a property, usually including a house or “home” upon the property;2. A seller;3. A purchaser/ borrower/ homeowner/mortgagor;4. A bank/mortgage company/ similar institution acting as a lender/mortgagee;5. A sales contract /contract of sale;6. A loan (from the lender to the seller);7. A mortgage containing the terms of the loan agreement (the legal document for the loan);8. A deed transferred from the seller to the purchaser; and9. A promise to repay the loan, often contained within the mortgage itself, known as the mortgage note. Deeds of Trust, Lien Theory States Vs. Title Theory States, and Judicial Vs. Non-Judicial Foreclosure States

The origin of U.S. property law stems from older Engl ish property law, in which there was a requirement for a third party to hold both the title (from the seller) and the money (from the buyer and, in later times, the lender) until both the seller and buyer/lender could meet their obligations under their agreement and the seller was ready to receive the money and transfer title. This third party was known as a “trustee.” A ceremony was held – the “livery of seisin,” where the p r o p e r t y w a s o ffi c i a l l y transferred – to finalize the transfer. This would be most closely associated with a formal closing ceremony today.

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Some states still require some form of using this third party and are known as “Deed of Trust ” s tates , where the homeowner issues a title to the third party for the purpose of securing the debt (the loan). The main reason for such an archaic and nuanced difference e x i s t i n g i n t h e m o d e r n mortgage process, other than tradition and a failure to modernize, is that most deeds of trust include a “Power of Sale Clause,” allowing the trustee to sell the property without going to court to obtain a judicial decree. Judicial and non-judicial foreclosure states are determined by statute, either requiring a party to go to court t o f o r e c l o s e o r n o t ( o r , s o m e t i m e s , i n c e r t a i n situations and not others). An easier way to think of a Deed of Trust is as a mortgage note held by a third party. Further, there are “Title Theory” states and “Lien Theory” states.

In a title theory state, the legal title, or right to use and live upon a property, is transferred to the homeowner, while the lender retains equitable title, the right to ultimately claim ownership of the property should the homeowner fail to fully satisfy the requirements of the mortgage. Wikipedia a c t u a l l y h a s a v e r y n i c e overview of the differences.

However, the article does err in one regard, referring to a mortgage as a security interest in a property. The security

interest is a separate thing. A mortgage is the instrument evidencing the debt, while the note promising repayment actually creates the security interest against the home (“attaching” the interest to the property). A mortgage, a m o r t g a g e n o t e , a n d t h e security interest attached to the property are three distinct legal concepts that are often conflated, intermingled, and confused with one another. All of the technicalities of this section are fairly unnecessary to the basic understanding of “how mortgages work” but, in a judicial proceeding, such as a foreclosure or lawsuit to settle ownership issues (or “quiet t it le” to a property) , the mechanics of these issues become more important , especially as additional parties are introduced to the chain-of-title (order of possession of the property and/or the mortgage rights against the property). Sloppy practices pertaining to the assignment of mortgages a n d t h e e n d o r s e m e n t o f mortgage notes were at the epicenter of the mortgage crisis in the United States.

MORTGAGE SERVICINGA practice prevalent in the mortgage industry is known as m o r t g a g e “ s e r v i c i n g . ” Servicing a mortgage simply means collecting the mortgage p a y m e n t s , t r a c k i n g a n d recording the status of the repayment of the loan, and c om m u n i c a t i n g w i t h t h e homeowner and the lender (often issuing statements to both). Servicers usually charge a fixed fee or a percentage of t h e t o t a l r e p a y m e n t i n exchange for their services. Some lenders have in-house servicing departments while many use third-party servicers who specialize in the field. The advantage to the lender is that

the servicer can focus on c o l l e c t i n g p a y m e n t a n d c o m m u n i c a t i n g w i t h homeowners while the lender focuses on what it does best – lending money, or issuing m o r t g a g e s , t o p o t e n t i a l homeowners the lender deems worthy of a loan. Servicers, due to their specialization, can also simplify things for homeowners by giving them one, specialized, p o i n t - o f - c o n t a c t f o r a l l questions, concerns, and issues pertaining to the homeowner's mortgage. The Consumer Financial Protection Bureau (“CFPB”) has a succinct and a c c u r a t e w r i t e - u p differentiating a lender from a servicer. As a general rule, servicers can collect and often f o r e c l o s e o n b e h a l f o f mortgage owners (lenders) but cannot transfer ownership of mortgages to other parties, absent a delegation of power-of-attorney (“POA”) from the owner to the servicer.

Assignments of MortgagesCommonly, at least in the U.S., a lender will sell the rights to collect upon a mortgage to a third party (“ass ign” the mortgage). When assigning a mortgage, the lender executes an “assignment of mortgage” document. Most jurisdictions require this assignment to be recorded in the local records pertaining to the property, alongside the deed and the original mortgage which is now being transferred to a third party. This allows anyone accessing the records to know who now stands in the original lender's place as the owner of the right to receive payments on the mortgage. Additionally, under Uniform Commercial Code (the “UCC,” enacted in some form in all 50 states) requirements for the formation o f a c o n t r a c t , l a n g u a g e pertaining to the giving of a

The main difference is that in a lien theory state,the homeowner has full title to the home and thelender simply has a lien (a legal claim) against the property (evidenced by the mortgage note).

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minimum amount of money and “other good and valuable consideration” (or similar) is included. Finally, the promise t o r e p a y n o t e m u s t b e transferred to the mortgage purchaser, as well. This signing over is called an “endorsement,” and the note is “endorsed” to the new owner. This note is either endorsed from the original lender to the mortgage purchaser specifically or it is “endorsed in blank,” making it a UCC-defined “bearer note” under Article 3 of the UCC. A bearer note is s imply an instrument that allows the holder of the note to collect on the instrument rather than a specifically-named party. This means that if the purchasing party then sells the rights to the mortgage down the line to any other parties, the eventual holder of the note is the one entitled to receive payments made to satisfy the original mortgage.

An everyday example of this is found in the form of a check – the original is written from Party A to Party B. Party B can then use the check to pay Party C and endorse it specifically to Party C, using the language “pay to the order of Party C” or similar. Alternatively, Party B could endorse the check as “pay to bearer” or simply sign Party B's signature. This means that Party C or any later holder of the check can cash it. The proper form of assigning mortgages and endorsing notes was also central to the U.S. mortgage crisis and the ensuing fraud by the banks.

SECURITIZATION“ S e c u r i t i z a t i o n , ” o r t h e “securitizing of mortgages,” is t h e p r o c e s s b y w h i c h a m o r t g a g e o r g r o u p o f mortgages is pooled together to form an asset (a trust fund)

which is then used as the collateral in an asset-backed security (or “ABS”). Mortgage-specific ABSs are commonly c a l l e d m o r t g a g e - b a c k e d s e c u r i t i e s ( “ M B S s ” ) o r , s o m e t i m e s , r e s i d e n t i a l mortgage-backed securities ( “RMBSs”) . Commerc ia l mortgage-backed securities are known as “CMBSs.” The security instrument is generally a bond or a “pass-through certificate” where the investors are paid according to the a m o u n t o f m o r t g a g e payments collected on the mortgages bundled into the trust.

Here is how the securitization process works:

1. A bank or other institution issues a mortgage. It profits by charging several percentage points as an “origination fee.” It then sells the mortgage to a purchaser for payment;

2 . T h i s p u r c h a s e r t a k e s hundreds or even thousands of purchased mortgages and combines the rights to receive payment on the mortgages into an asset (a fund held in trust) which receives all of the mortgage payments. The institution then issues a bond or cert ificate which pays investors an amount (the “coupon rate”) based on the payments of the mortgages into the trust. This is an asset-backed security, using the underlying mortgages as the assets/the trust backing the bond (the security) specifically known as an MBS or RMBS. The securitizing institution charges a fee (usually around 2%) to the investors for the opportunity to invest in the bonds;3. The investors purchase the bonds, giving money to the institution creating the MBS, replacing the cost of having

purchased the mortgages pooled in the MBS. The institution can then purchase more mortgages from other institutions, who can then issue more mortgages and so on;4. The investors receive bond payments, at a stated percentage (the coupon rate), minus the fees of the firm creating the MBS, minus any defaults (mortgages payments that are not made) and any early payoffs (no more interest i s t o b e r e c e i v e d o n t h e mortgage). Historically, the mortgage is one of the first payments a household makes when paying bills and, thus, was usually considered very safe. Additionally, the Pooling Service Agreement (“PSA”), the document governing the MBS, often provides that the lender selling the mortgage to the securitizing institution, should the mortgage default, must replace the mortgage with a “performing mortgage” (one where the homeowner is making payments, meaning not in default) or a cash equivalent. Thus, MBSs were h i s t o r i c a l l y c o n s i d e r e d extremely safe investments.

The concept of securitization started as a simple idea run mainly by the U.S. Government, with the stated purpose being to infuse money into the mortgage market and allow for more Americans to purchase homes. The idea later grew into a private investment tool and improper practices in the industry led to and exacerbated what is commonly referred to as the Financial Crisis of 2008 ( o r 20 07 - 8 ) o r j u s t t h e “Financial Crisis.”

A History of Mortgages in the U . S . a n d G o v e r n m e n t Involvement - Origins and Historical Overview

T h e m o d e r n r e s i d e n t i a l

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mortgage dates back to the 1930s and exploded in the Post-WWII boom of the late 1940s through the 1960s. As part of Franklin D. Roosevelt's “New Deal” legislation, the U.S. government formed several institutions to facilitate a more liquid credit market with access to mortgages made available to a higher percentage of Americans. This included the creation of the Federal Housing Authority (“FHA”) in 1934 and the Federal National Mortgage Association (“FNMA,” almost always referred to colloquially as “Fannie Mae”) in 1938. This effort has been aided through the fo l lowing decades in various way, including the 1965 formation of the Department o f H o u s i n g a n d U r b a n Development (“HUD”) of which the FHA is now a part, the Civil Rights Act of 1968, known as the “Fair Housing Act,” the 1 968 Housing and Urban D e v e l o p m e n t A c t , w h i c h c r e a t e d t h e G o v e r n m e n t Mortgage National Association (“GNMA” or “Ginnie Mae”), and the 1970 formation of the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”).

G o v e r n m e n t I n s u r a n c e / Guarantees, Fannie Mae, Freddie Mac, and Ginnie Mae Government-Backed Loans

The FHA, the United States Department of Agriculture (“USDA”) Rural Development Program (“RD”) (managing what was formerly the Farmers H o m e A d m i n i s t r a t i o n ( “FmHA”) Program) , the Veterans Administration (the “VA”), and the Office of Pubic and Indian Housing (“PIH”) offer insurance on loans that meet certain underwriting requirements. This means that, should the homeowner default and the sale of the

property be insufficient to cover the lender's losses on the loan, these government institutions will cover the lender's losses. This incentivizes lenders to issue loans conforming to the agencies stated underwriting s t a n d a r d s a s t h e y a r e essentially “zero risk” loans for the lender. These insured loans are known as “conforming loans.” All of these loans can collectively be referred to as “government-backed” loans. Historically, loans that were not government-backed were g e n e r a l l y r e f e r r e d t o a s “conventional loans.” Since 2000, many “exotic loans” have proliferated – this is discussed below, under the “Private-Label MBSs” section.

GOVERNMENT AGENCIES AND GSESF r e d d i e a n d F a n n i e a r e G o v e r n m e n t S p o n s o r e d E n t e r p r i s e s ( “G S E s ” ) , o r government-formed private companies, publicly-traded and owned by shareholders. T h e y a r e n o t , h o w e v e r , government agencies and are explicitly not backed by the U.S. government. Thus, they could fail without the government stepping in to save them. This is debatable due to recent history, but the lesson is that t h e c o m p a n i e s m u s t b e cautious in their dealings to ensure their future survival. Fannie Mae was sold off as a publicly-traded company in 1968 with the creation of Ginnie Mae. Freddie Mac was c r e a t e d a s a “ b r o t h e r company” in 1970 to provide c o m p e t i t i o n i n t h e marketplace. Freddie and Fannie purchase loans from lenders and securitize them into MBSs. Generally, Fannie p u r c h a s e s f r o m l a r g e c o m m e r c i a l b a n k s w h i l e Freddie targets the smaller banks and credit unions. These

are conventional loans and are not government-backed.Ginnie Mae, unlike Freddie and Fannie , i s a government agency, also within the FHA, and was created in 1968 by splitting Fannie Mae into two companies – Ginnie Mae and the existing Fannie Mae, which w a s c o n v e r t e d f r o m a government agency into a publicly-traded company. Ginnie Mae exists to provide security for MBSs consisting of government-backed loans. When a Ginnie Mae-approved private issuer creates an MBS consisting of only government-backed loans, Ginnie Mae g u a r a n t e e s t h e M B S f o r investors. This incentivizes investors to purchase the MBSs c o n t a i n i n g g o v e r n m e n t -backed mortgages.

Agency and Non-Agency MBSs*Here is a very important thing to remember – “Agency MBSs” r e f e r s t o a n y t h i n g a n d everything concerning the GSEs. However, only Ginnie Mae deals in government-backed loans, and only by g u a r a n t e e i n g t h e M B S s created from them. Fannie and Freddie both deal with c o n v e n t i o n a l , n o n -government-backed loans. Any MBSs containing loans not involved with Fannie Mae, Freddie Mac, or Ginnie Mae are “Non-Agency MBSs.” Agency and government-backed are not interchangeable terms, nor are non-government-backed and non-agency. Freddie and F a n n i e d o n o t b u y government-backed loans to put in their MBSs (they create only non-government-backed, agency MBSs) and many government-backed loans are sold to Ginnie-Mae approved private issuers (and, thus, Agency MBSs) but could be sold to any private issuer to s e c u r i t i z e , m a k i n g t h e m

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mortgage company, credit union, savings and loan, etc.) would issue a mortgage to a homeowner in the community. The institution would hold the loan for up to 30 years, so it had a strong interest in assuring that the borrower was credit-worthy and would, in fact, pay the mortgage. The bank was incentivized to make only high-quality mortgages because the t i m e , e ff o r t , a n d c o s t o f foreclosing was a burden and the bank would greatly prefer to profit from the interest charged on the loan. Over time, as the banking and mortgage industries grew, the p r a c t i c e o f a s s i g n i n g m o r t g a g e s f o r b u s i n e s s p u r p o s e s b e c a m e m o r e common. With the 1970s a d v e n t o f s e c u r i t i z i n g mortgages, the assignments of mortgages became a common practice that led to a greater volume of loans issued.

Government Agencies and GSEsThe main purpose of programs run by the FHA, the USDA's RD program, the VA's program, and the PIH is to facilitate more lending by insuring certain types of loans, leading to government-backed loans. Fannie Mae and Freddie Mac exist to infuse capital into the national mortgage market by purchasing mortgages from lenders and by selling those mortgages, in the form of MBSs, to investors. Ginnie Mae entices investors to purchase M B S s c o n s i s t i n g o f

Government-backed Non-Government-backed

Agency

NonAgency/PrivateLabel

Possible - any FHA/etc. loans securitized without a Ginnie Mae guarantee

Any MBSs with conventional loans not securitized by Fannie/Freddie as well as all exotic loan MBSs

The MBSs sold by Fannie/Freddie – never has a Ginnie guarantee – conventional mortgages

Anything guaranteed by Ginnie Mae (private securitizing institution, FHA/VA/RD/PIH/etc.)

government-backed, but not agency MBSs.

As an overview, here are a few takeaways from the U.S. mortgage market and the main players behind it:1. Fannie Mae and Freddie Mac purchase conventional (non-government-backed) loans from the market, infusing the national mortgage market with capital;2 . T h e F H A a n d o t h e r government agencies insure government-backed loans to encourage lending;3 . G i n n i e M a e - a p p r o v e d private issuers purchase and securitize government-backed loans;4. Ginnie Mae then guarantees these MBSs which incentivizes investors to purchase them and, in turn, funnel more money back into the lending side of the mortgage market.The government's promotion of widespread home ownership has often been cited as a reason for the United States having a much larger middle class than most countries of the world and is directly tied to the nation's wealth and its lesser disparity in the middle-i n c o m e p o r t i o n o f t h e population in comparison to many other countries' wealth distribution.

Institutional Goals

LendersHistorically, a bank or other l e n d i n g i n s t i t u t i o n ( a

g o v e r n m e n t - b a c k e d mortgages by guaranteeing the MBSs which allows for more money to be available to issue n e w g o v e r n m e n t - b a c k e d mortgages.

Private-Label MBSs

OriginsFirst appearing in 1977, the “pr ivate- labe l ” MBSs (or “private-label securit ies” , “PLS”) were simply MBSs c o m p o s e d o f n o n -government-backed loans not purchased by Fannie and Freddie, sometimes because t h e y d i d n o t m e e t t h e i r standards for conventional mortgages. These instruments initially allowed new investors (specifically retirement funds and insurance companies, via their investment portfolios) to invest in the mortgage market. Later versions of PLSs were vast ly d ifferent than the original iterations.

Types of LoansSome of these loans were s imply too large (“ jumbo loans,” those above a certain dollar amount) for the GSEs or were issued to people with credit scores just missing the cutoff for FHA (<660 FICO score). However, over time, the types of loans became more exotic and the institutional goals changed. To create more of a market, lenders began issuing “exotic” loans such as those with 40-year repayment periods, sub-prime (poor credit score) loans, Alt-A loans, and a

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whole variety of loans with a d j u s t a b l e r a t e s ( t h e repayment rate changes over the life of the loan), often featuring a lump sum payment requirement to satisfy the remaining principal at the end of the life of the mortgage (a “ba l loon mortgage” or a “balloon payment”) that most borrowers were unable to make. These loans were often made w i th the intent of refinancing prior to the lump sum payoff. Some people were issued what are known as “Alt-A loans.” The name stems from the loans being an alternative t o “ A - p a p e r , ” o r t o p investment-grade mortgages. Alternative to A = “Alt-A.” These fit into a middle market between prime lending (either conforming government-backed loans or conventional loans with similar risk profiles) and sub-prime (usually poor credit) lending. The loans were often issued to people in investment properties (1-4 units, where the homeowner could rent out additional units on the property), featured lower down payments, or had variable interest rates. A hallmark of Alt-A was the lack of, or minimal, verification of the borrower's income. This makes some sense for an investment property that conceivably pays for itself, but for most loans it simply reflects the hubris of the times in thinking the housing market will forever and always be trending upward as well as the shifting institutional goals in issuing loans to borrowers. Loans that featured limited documentation, from income verification to credit rating to anything else that would be found in a standard loan application were often referred to as “liar's loans,” a reflection of the ease with which an applicant could fictionalize or

omit the information and the lender did not care to call the borrower out on the dishonest application. The lender was disinterested in this as they were making huge sums of money for originating loans (fees for issuing a loan) and had a steady supply of ready buyers securitizing all of the loans they issued – when they no longer kept the loans on the i r own books , lenders seemingly cared far less about the quality of the loans.

A Huge New Market for Wall StreetFrom 2001-2007, new issues in the PLS market averaged nearly $370 billion dollars per year, topping $1 trillion in both 2006 and 2007. This market undeniably played a major role in the Financial Crisis though what role and how large a role are both debatable and the topics of many other papers. From 2008-2014, the new issues shrank to an annual average of under $10 billion. Issuing “liar's loans” and other, riskier, loans was standard practice in the mid-2000s. Taking a percentage of all lending was a very profitable industry for most of the institutions on Wall Street and was a major contributor to the Financial Crisis, both in terms of triggering it and in terms of exacerbating the effects of it.

Shift in Institutional GoalsPreviously, lending institutions had basically two things they could do with a mortgage they had issued – keep the loan on their own books, collecting interest (as with conventional loans), or sell them to Freddie or Fannie (when the loans were conforming loans) or another Fannie Mae-approved private issuer (when the loans were conforming government-b a c k e d l o a n s ) . T h u s , a

majority of the loans issued were conforming loans or relatively low risk conventional loans at most institutions. In the early 2000s, Wall Street took the 1977 private-label idea and ran with it. With private-label MBSs now buying all sorts of new, exotic loans like the ones detailed above, lenders had no reason to be concerned with the riskiness of the loans they extended – someone would always be there to buy the loans off of the issuer's books, at a profit to the lender. For the institutions purchasing these riskier mortgages to roll into MBSs (sometimes also referred to as residential mortgage-backed securities or “RMBSs”), there was seemingly always an institutional buyer willing to snap up any MBS in the market. When an MBS did not sell well, the institutions were able to roll many MBSs into a larger MBS and call it a collateralized debt obligation (“CDO”) or, less commonly, a c o l l a t e r a l i z e d m o r t g a g e obligation (“CMO”).

The honesty of such ratings has been called into question but is and, like the role of the MBSs in the Financial Crisis, has been, a topic for many other papers. In any event, the overrating of these MBSs and the ability to simply roll them into a well-rated CDO led to a nearly insatiable appetite for these types of products by investors.Thus, to recap the shift in goals:1. Originating lenders no longer cared much about the

These CDOs, by virtue of having more MBSs in them, were considered “diversified” and given excellent ratings (often over 90% “AAA”), despite containing mostly the same products (similar types of mortgages) in them.

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quality of the loans they issued, as the loans did not have to stay on the lender's books, nor d i d t h e y h a v e t o m e e t conforming loan standards – almost anything issued was seemingly snapped up by a n o t h e r i n s t i t u t i o n t o securitize, leaving the lenders with profits from origination fees on many, many times the volume of lending they were able to do prior to the mass-securitization of loans by PLSs;2. Securitizing institutions no longer were concerned with the quality of the loans in their MBSs (in stark contrast to the MBSs issued by Fannie Mae and Freddie Mac and those backed by Ginnie Mae) as they were able to obtain high ratings on all MBSs and to roll poorly-performing ones into CDOs – the investors had a seemingly u n q u e n c h a b l e t h i r s t f o r mortgage debt instruments, so the Wall Street securitizers simply kept feeding the beast;3. R a t i n g s a g e n c i e s (namely Standard & Poor's (S&P), Fitch, and Moody's Investor Services (Moody's)) were paid by the securitizing i n s t i t u t i o n s t o r a t e t h e products and, likely due to competition between agencies, often rated products backed by mortgage debt at arguably inflated rates. This “overrating” eventually led to many claims o f f r a u d a n d d i s p l e a s e d investors and4. Investors snapped up securitization offerings as quickly as they could, almost always without questioning the a s s i g n e d r a t i n g o f s u c h p r o d u c t s o r f u l l y understanding exactly what it was they were buying. This lack of understanding led to many investors making poor choices and, when the underlying assets failed (homeowners defaulted on payments on many of the exotic mortgages

and home values fell, making them insufficient to cover losses), the bonds became worthless.The heavy investment in mortgage-backed securities, the dubious rating practices, and the newly-minted investor appetite for mortgage debt led many lenders and securitizing institutions to cut corners or commit outright fraud. When someone is not on the hook for their actions and can simply sell any issues on down the line, history has shown that people will sometimes cheat.One of the cases handled at Roemerman Law involves a securitizing institution that had documents fraudulently created on its behalf, stating that the institution owned m o r t g a g e s a n d t h e accompanying mortgage note. On some of the loans, they may have, but on others they simply lost or destroyed the note and, with it, their rights in the property. Regardless of the o r i g i n a l s t a n d i n g o f t h e inst i tut ion , us ing forged documents to enforce a right invalidates any rights, under the Doctrine of Clean Hands and many statutory regimes. The institution's use of forged d o c u m e n t s w a s o n a n unprecedented and massive scale. The institution, along with many others, has already reached settlements with i n v e s t o r s f o r t h e f r a u d committed in selling MBSs and CDOs, as well as reached a settlement with the attorney generals for 49 states for the i n s t i t u t i o n ' s f r a u d u l e n t practices in originating and s e r v i c i n g l o a n s o n t h e homeowners' side of things (more on that below). See the National Mortgage Servicing Settlement of 2012.

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INSIDE TOKUNBO ORIMOBI

On January 12, 1979, Tokunbo Orimobi & Co was established as a boutique law firm in Surulere, Lagos. 40 years later, the law firm has metamorphosed into an international legal practice, having a total staff strength of circa 50 persons globally. The firm currently has offices in Abuja, Ibadan, Lagos, London, New York, Port Harcourt, Port Louis and Pretoria.

In celebration of our ruby jubilee anniversary, the firm shall be having a week-long event from January 6 - January 12, 2019. The schedule of events is delineated below –

1. RUBY JUBILEE THANKSGIVING SERVICE Date: Sunday, January 6, 2019; Venue: Anglican Church, Ikeji-Ile, Osun State; Time: 10:00am.

The thanksgiving service is scheduled to hold at our Global Chairman's hometown in Osun State.

2. TOKUNBO ORIMOBI CORPORATE SOCIAL RESPONSIBILITY (CSR) INITIATIVE Date: Monday, January 7, 2019; Venue: Ikeji-Ile Primary School, Ikeji-Ile, Osun State; Time: 9:00am. At Tokunbo Orimobi, we are committed to eth ics that respect the interests of stakeholders and recognize the importance of the community. For this reason, the law firm would adopt Ikeji-Ile Primary School being the alma mater of our Founding Partner. 3. TOKUNBO ORIMOBI GLOBAL EXECUTIVE COMMITTEE (“GEC”) MEETING Date: Wednesday, January 9, 2019; Venue: New York Meeting Room, Tokunbo Orimobi Office, Lagos; Time: 10:00am. The Global Executive Committee of Tokunbo Orimobi is the decision-making body of the firm. The GEC is made up of a selection of equity partners from our offices globally. During this meeting, the affairs of the firm for the year 2019 will be discussed. After the meeting, there will be a tour of Lagos to show our foreign partners/colleagues/business

associates the beauty of our country.

4. TOKUNBO ORIMOBI ANNUAL MOOT COURT COMPETITION Date: Thursday, January 10, 2019; Venue: Afe Babalola Hall, University of Lagos, Akoka, Yaba, Lagos; Time: 9:00am. Tokunbo Orimobi will be inaugurating its annual moot court competition via this event. The annual moot court competition will focus on transactional law – capital markets, mergers & acquisitions, banking and finance. We believe this event will help the overall development of law students. Participating Schools - University of Lagos, University of Ibadan, University of Nigeria, Nsukka and Obafemi Awolowo University, Ile-Ife. 5. TOKUNBO ORIMOBI NOVELTY FOOTBALL MATCH Date: Friday, January 11, 2019; Venue: Upbeat Centre, Lekki Phase 1, Lagos; Time: 5:00pm. The football match will be played amongst Tokunbo Orimobi staff, alumni, clients, friends and family. 6. DOING BUSINESS IN NIGERIA (“DBN”) SERIES Date: Saturday, January 12, 2019; Venue: Idera Hall, Radisson Blu Anchorage Hotel, Lagos; Time: 8:00am. The DBN Series is one of our annual CSR initiatives at Tokunbo Orimobi. The session enl ightens investors about bus iness opportunities in Nigeria. The panelists or speakers are usually major players selected from various sectors of the economy. Having held previous editions in New York, London and Johannesburg, the 2019 edition will be the first in Nigeria. The firm will also be launching the 2019 edition of “Gnosis” - her annual economic outlook publication.

TOKUNBO ORIMOBI @ 40

37

Tokunbo Orimobi prides itself in the contributions it makes to the public via its Corporate Social Responsibility Initiatives. To further advance its CSR initiatives, the firm has launched “The Tokunbo Orimobi Foundation”.

This foundation is established for the purpose of providing educational support to students, pro-bono advisory and business support services to entrepreneurs, small & medium sized entities, and also to engage in mentorship programmes for students and young entrepreneurs. The founding trustees are Michael Orimobi – Global Chairman, Tokunbo Orimobi Legal Group, Kayode Falowo – Group Managing Director, Greenwich Trust Limited, Seyi Onajide – Group Managing Director, RT Briscoe Plc and Juan Stoltz – Managing Director, Africa – Avcon Jets.

Following the successful launch of its office in Pretoria, South Africa, Tokunbo Orimobi opened a new office in Port Harcourt, Nigeria. Being the capital and largest city of Rivers State, Nigeria, Port Harcourt lies along the Bonny River and is located in the Niger Delta. It is also a major industrial c e n t r e w i t h a l a r g e n u m b e r o f multinational firms, particularly businesses related to the petroleum (oil & gas) industry. Tokunbo Orimobi's Port Harcourt office is strategically located in close prox imity to some of the lead ing companies in Nigeria, giving the Firm access to a large clientele base. The office offers a full spectrum of legal services to start-ups, large companies, government institutions and individuals. Our team cons ists of competent and h ighly sophisticated lawyers, who are committed to providing bespoke legal services.

TOKUNBO ORIMOBI OPENS OFFICE

IN PORT HARCOURT

THE TOKUNBO

ORIMOBI FOUNDATION

38

In his remarks and in the course of interacting with delegates present at the DBN Series, Michael Orimobi stated that although Nigeria is a country with good project finance opportunities, the major hindrance that prevents interested investors from properly taking advantage of these opportunities is the lack of proper implementation of laws and policies by the Government. He also stated that Nigeria is gradually moving away from its dependence on Oil & Gas and venturing into other sectors such as Agriculture, Mining, Construction etc, which further broadens the scope of available opportunities within the country.

A f t e r a n i n s i g h t f u l t i m e o f deliberations and networking, the DBN Series ended with delegates having a deeper appreciation of the innate potentials within the Nigerian economy as a fertile ground for subsequent business investments.

Tokunbo Orimobi hosted another edit ion of its Corporate Social Respons ib i l i ty Seminar , Do ing Business in Nigeria (DBN) Series on October 18, 2018 at K & L Gates, London. The event which focused on project finance had our Global Chairman, Michael Orimobi, Omosuyi Fred- Omojole (Chief of Staff, Anergi Energy), Ijeoma Aluya (Relationship M a n a g e r , G l o b a l C o r p o r a t e s , Ecobank), and Mayank Gukpta (Partner, K & L Gates) as panelists. The opening remarks were given by Tony Griffiths (Managing Partner, Europe and Middle East, K & L Gates LLP).

The panelists, as leading experts in their various fields, dealt with a wide range of issues regarding project fi n a n c e i n N i g e r i a a n d t h e conversation focused specifically on examining the economic outlook of Nigeria in 2019, the available project finance opportunities that exist in Nigeria for interested investors to explore, as well as the legal issues to be considered when pursuing project finance opportunities in Nigeria.

DOING BUSINESS IN NIGERIA (DBN) SERIES -

LONDON 2018

39

industry, at affordable pricing.

Historically, luxury has been about having exclusive access to a certain product or service. Something not everyone can h a v e - t h e t h i n g t h a t consumers buy, own and have in order to keep up with and surpass their neighbours.

Luxury has never been about things people need, but things people want. Luxury is what people use to define and influence perceptions about themselves. Luxury is what the Tokunbo Orimobi brand is all about.

Though an affordable luxury brand, Tokunbo Orimobi has c o n s i s t e n t l y d i s t r i b u t e d unrivalled quality in all dealings with its clients as it is that law firm is that is ready to stick by its clients and employees in all situations.

Our mantra is that chant, which we continual ly use repeatedly, to remind us of who we are, where we are coming from, where we are and where we hope to be. It is a reminder of what makes our clients happy with the services we render, and trust that in spite of being an affordable luxury brand, we are able to put their needs first.

We all have words we live by. They might be memories of our parents telling us we can be anything we choose to be if we w o r k h a r d e n o u g h o r inspirational words like “a stitch in time saves nine” to help us make it through a rough time o r l a n d t h a t d r e a m j o b , husband or wife. Tokunbo O r i m o b i h a s i t s o w n inspirational phrase that motivates it to keep serving its c l i e n t s , e m p l o y e e s a n d stakeholders.

A Mantra is that phrase that characterises an individual or corporate body's philosophy. It is a slogan that communicates a s t r o n g m e s s a g e t o i t s employees, clients, friends and associates. Mantra plays an important role in capturing the thoughts of an organization or individual, by bringing clarity and focus towards achieving its set objectives and goals.

A Mantra helps a company stay true to its original intentions. It reminds the employees of the core value, beyond the product or services they are offering. Organizations often change course and pivot, but a mantra is l ike a torch that keeps everyone warm and close, and lights the way forward in the dark.

A Mantra is important because it helps an organization decide,

c o m m u n i c a t e a n d a l i g n everyone in the same direction as opposed to individualistic approaches in executing their m a n d a t e . A M a n t r a c o m m u n i c a t e s c l a r i t y , conviction and passion about t h e o r g a n i z a t i o n a n d emphasizes its important and reward ing features than focusing solely on where the company is going.

Mantras help individuals in organizations make decisions consistent with company goals and communicate the culture of the company.

Tokunbo Orimobi's mantra, “an affordable luxury brand”, sums up the values of the firm and how we approach every aspect of our business.

Our brand is our life, and our life is defined by our core values a n d c u l t u r e . O u r b r a n d represents a shared truth b e t w e e n o u r c l i e n t s a n d employees. Our brand drives us towards achieving our mission. Our brand boasts of energetic, young professionals who are fun and sophisticated. We take our practice outside of the walls of “law” and offer vast and boutique perspectives to our clients. Our brand reels of loyalty, good relationship and resourcefulness. It is as a result of this that we are able to compete with the best in the

THE TOKUNBO ORIMOBI MANTRA

40

SOME NOTABLE TRANSACTIONS & CLIENTS IN 2018

Solicitors to Greenwich Asset

Management Limited's N1,000,000,000 Exchange Traded

Fund (ETF)

Solicitors to the Offer on the Rights Issue of

Red Star Express Plc

Solicitors to Afrinvest Asset

Management Limited's N1,000,000,000 Exchange Traded

Fund (ETF)

Transaction Counsel to the Ziklag Capital Consortium on the acquisition of

a discount house

Solicitors to Mines.IO Nigeria

Limited on its 13 million USD

Series A nancing

Solicitors to the Share Capital Reduction

Exercise of C & I Leasing Plc

Transaction Counsel to

CardinalStone for the acquisition of EDC Registrars

General Legal Advisers to

Staco Insurance Plc

Company Secretary to

Mavin Records

General Legal Advisers to

Northerns Cricket Union

General Legal Advisers to

TITANS

Local Counsel to the Lender on the nancing of the circa $2bn Kano

Light Rail Project

At , TOKUNBO ORIMOBIwe leverage the expertise of our people,

and our global networks, to foster valuable partnerships

info@tolegalgroup.com www.tolegalgroup.com