Lagos state commissioner of finance, Akin Ashade has confirmed that the state has raised N85 billion in bonds to fund environmental and infrastructure projects. The bonds raised are part of a N500 billion bond programme approved by the state house of assembly last year. N50 billion was raised last year bringing the total amount raised so far to N135 billion.
Here are highlights about the bond raise
- A total of N85 billion was raised.
- N46.3 billion was raised through a 7 year bond at 16.75%
- N38.75 billion was raised in a 10 year bond at 17.25%
Interest rates on the bond are above inflation
Interest rates on the bonds show they are higher than current inflation rates as well as interest rates paid by the federal government. National Bureau of Statistics (NBS) Consumer Price Index put inflation at 16.1 % while the federal government’s last bond raise was at 16.2%. Companies intending to raise funds may have to offer an even higher interest rate to attract investors.
The push for higher interest rates rise could also be a reflection of waning appetite for debt by investors and a possible rise in inflation. The stock market has recently rallied, fuelled by renewed interest from foreign investors and a change in fund allocation rules by pension fund administrators (PFAs). Year to date, the All Share Index is up almost 40%. While inflation has trended downwards in recent months, some analysts believe the drop is due to a high base effect (this means inflation went up massively last year) and inflation rates could go up again due to planned increases in energy costs and increase in food prices.