A likely default by Visionscape on a N27 billion bond may have left the Lagos State government on the hook since it put up a guarantee for the firm.   

The chain of events  

In March 2017, the state government signed a new environmental law christened the Cleaner Lagos Initiative 

Visionscape was handed residential waste disposal, a turf that was prior to this run by Private Sector Participants (PSPs). 

Bua group

The State Executive Council in March 2017 passed a resolution to secure the financing structure adopted by Visionscape and its partners to raise up to N50 billion in bonds for the implementation of the CLI through the issuance of an Irrevocable Standing Payment Order (ISPO) as a charge on the State Internally Generated Revenue Account/ Environmental Trust Fund. 

The company thereafter raised an initial first tranche of its bond issuance, an N27 billion, 17.5% fixed rate, a five-year bond due 2022. 

What may have led to the default  

The company in October last year, shut down operations citing heightened political tension in the state and reported cases of attack on its employees, destruction of its operational vehicles and equipment. 

John Irvine, MD of the firm in an interview held last year suggested payments where performance-based.  

Now about funding, what we are doing is a performance-based contract or project. If I don’t perform I don’t get paid. For instance, if I had to collect a million tons of waste in January and I only collected 998 tons, of course, I would not get paid for that month because it is performance based.

It is unknown if the firm has received any payments since it suspended operations.

Implications of the default  

Since Lagos State has guaranteed the bond, and the company has been unable to meet the required payments, the state government may have to make the required payments.  

Some reports, however, suggest that the state government was yet to make payments into a sinking fund.

The wider picture

The reported default by the company, not only increases the risk premium of the state but companies that may wish to enter into similar agreements with state governments.

 

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