Nigeria’s financial market has taken a bold step forward. DLM Capital Group has officially launched the N30 billion Sovereign Bond-Backed Composite Notes (SBCNs) — a pioneering structured finance instrument that blends sovereign security with high-yield private credit returns. This new offering is set to redefine investment opportunities for pension funds, development finance institutions (DFIs), and asset managers, while unlocking much-needed credit access to MSMEs and underserved sectors.
What Are Sovereign Bond-Backed Composite Notes (SBCNs)?
SBCNs are innovative hybrid investment instruments backed by a perfect blend of sovereign and real sector cash flows into a single security, structured within a Special Purpose Vehicle (SPV). This blend delivers a AAA credit rating, principal protection, and an attractive 47.07% hold-to-maturity yield.
This new product allows investors to enjoy the safety and reliability of sovereign debt combined with enhanced returns from Nigeria’s rapidly growing private credit market a truly unique offering in the Nigerian capital markets landscape.
SBCNs are a new type of hybrid financial instrument structured to:
- Combine Federal Government of Nigeria (FGN) bonds (for principal and income protection),
- With consumer/SME loan cashflows (for higher yields),
- All managed within a ring-fenced Special Purpose Vehicle (SPV) regulated by the SEC.
Think: 50% safety, 50% opportunity. 100% innovation.
Why This Launch Matters
This is not just another capital market instrument—it’s a game-changer:
1. Investor Security with Yield
With Nigeria’s inflation pressure and FX volatility, institutional investors are seeking safe assets that outperform traditional yields. SBCNs deliver just that with a 47.07% HTM yield backed by sovereign cash flows.
2. Portfolio De-Risking
Pension funds, DFIs, and asset managers now have access to long-duration structured notes that maintain investment-grade ratings while funding high-growth private credit sectors.
3. Financial Inclusion Engine
Proceeds from the SBCNs will fund consumer loans and MSME finance, providing capital to underserved and underbanked segments of the Nigerian economy.
4. First of Its Kind in Africa
DLM Capital is pioneering this structure in Nigeria, signalling to the global financial community that structured innovation is alive in frontier markets.
What is the structure of DLM’s N30bn SBCNs?
- 50% invested in sovereign bonds
- 50% in short-tenure SME/consumer loans
- AAA-rated through blended cashflow protections
- 10-year investment period through SPV
Why should institutional investors care?
- Offers above-inflation returns
- Built-in sovereign risk protection
- SEC-regulated, with tradable liquidity pathways
- Aligns with sustainable finance and economic inclusion
What makes this different from traditional bond funds?
- Traditional bond funds track FGN yields. SBCNs offer a dynamic return source, combining risk-managed lending with sovereign-grade protections.
How It Affects Nigeria’s Capital Market
By unlocking ₦30 billion in structured capital and channelling it into the productive real sector, SBCNs represent:
- A blueprint for alternative debt financing in Africa
- A boost to capital formation beyond oil-linked revenues
- A tool to attract diaspora and offshore capital looking for high-yield, low-risk African investments
How It Works (Step-by-Step)
1. Establishment of a Special Purpose Vehicle (SPV)
- An SPV is created to ring-fence the assets and liabilities of the SBCN.
- This ensures the instrument is bankruptcy-remote and can issue tradable notes to investors.
2. Fund Allocation
When an investor subscribes, the SPV splits the funds:
3. Cashflow Generation
- Sovereign bonds generate steady and predictable interest (risk-free rate)
- Private credit delivers high interest from loan repayments
4. Cashflow Pooling and Note Servicing
- All income flows into the SPV and is blended to pay investors a composite yield
- Returns are enhanced by the private credit side, while credit risk is cushioned by the government bond side
5. Investor Payout
- Investors receive:
Frequently Asked Questions (FAQ)
Q1: What is the minimum investment for SBCNs?
Ans: DLM Capital targets institutional investors such as pension funds and DFIs, with minimum subscriptions typically aligned with institutional fund mandates.
Q2: Are SBCNs tradable?
Ans: Yes, the SPV structure ensures liquidity and tradability on secondary markets.
Q3: How is the yield calculated?
Ans: The 49.9% hold-to-maturity yield reflects combined returns from sovereign bonds and private credit cash flows, less costs and provisions.
Q4: What risks are involved?
Ans: Risks are mitigated by sovereign backing and robust portfolio management of the SME loans, though investors should evaluate credit risk exposure in the private credit portion.
Final Thoughts
With the launch of these first-ever Sovereign Bond-Backed Composite Notes, DLM Capital Group is reshaping how risk, yield, and impact can co-exist in Africa’s capital markets. This is more than just finance; it’s innovation with a purpose. If you’re an institutional investor, asset manager, or policymaker, the question isn’t “Should we explore this?” It’s “Can you afford not to?” Contact us at DLM capital Group
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