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Debts-Revenue Quagmire heightens, as 10 States in Nigeria owe N2.74 trillion

Ten states in Nigeria have accumulated biggest debt profiles above N100 billion each. Collectively, these highly indebted states owe both external and domestic debt to the tune of N2.74 trillion.



Ten States in Nigeria, Foreign Investors abandoned 27 States, as Lagos and Abuja attracted $5.8 billion, tax revenue, Foreign investors dump 29 states in Nigeria, as Lagos attracts $4.97 billion in 3-month , Foreign investors ship $21.14 billion to 22 States in 10-month , 36 states contravene DMO rule, took debt more than revenue, FAAC disburses N650.8 billion as South-South states receive highest share

The latest debt data released by the Debt Management Office (DMO) shows that the top ten (10) states in Nigeria have accumulated debt profiles of above N100 billion each. Collectively, these highly indebted states owe both external and domestic debt to the tune of N2.74 trillion.

The recent surge in the debt profiles of both the Federal and State Governments has caused new concerns for policymakers. Although debt is important for economic growth, the size of the debt is important for sustainability.

According to the DMO’s debt data, these states control 52% of the entire debts accruable to all the 36 states. Specifically, the 10 states owe N2.74 trillion, out of N5.27 trillion states’ debt stock.

Top N100 billion debtors’ club

In order to provide detailed insights into the revenue-debt challenges of the top 10 states that have accumulated over N100 billion debt stock each, a look into the Internally Generated Revenue (IGR) also becomes important. A quick check into the most recent IGR data shows that all 36 states including the FCT generated N1.16 trillion in 2018.

  1. Lagos State: Nigeria’s commercial hub, Lagos, leads the debtors’ club, as its total debt stands at N980 billion. Specifically, the domestic debt of Lagos as at the end of March 2019 was estimated at N542 billion. Without a doubt, the state is Nigeria’s trade centre, with the Apapa seaport that controls almost 90% of goods that flow out of the country.
    However, on the revenue side, the recent IGR data from the National Bureau of Statistics (NBS) shows that Lagos State generated the sum of N382 billion in 2018. This is the biggest across states, but it only covers 70% of domestic debt only.
  2. Rivers State: Rivers is Nigeria’s second most indebted state. The state is one of Nigeria’s major oil-producing states and scoops monthly 13% derivation from the Federal Government.
    Rivers State’s total debt stands at N249 billion, while domestic debt is biggest at N225.5 billion. On the other hand, the state generated N112 billion IGR in 2018. Measuring its debt against revenue, it means that the state’s revenue can only pay 49.9% of the huge domestic debt, while the external debt is hanging.
  3. Delta State: Delta State is third on the list, with an estimated N242 billion, out of which domestic debt gulps N223 billion. Delta is equally an oil-producing state with a 13% monthly derivation allocation and several international oil corporations.
    More worrying statistics are derived when comparing the state’s debt stock to its IGR. Basically, Delta State’s reported IGR in the year 2018 was put at N58 billion. This means that the state’s IGR represents only 26% of its domestic debt only.
  4. Cross River: The state’s debt was estimated at N225 billion in March 2019. Cross River generated N17 billion IGR in 2018, and this puts the state’s revenue at 10% of N167 billion domestic debt.
  5. Akwa-Ibom: The total domestic debt owed by the State as of March 2019 was N199 Billion. In total, Akwa-Ibom owes N213 billion. This is another oil-producing state, with billions received monthly from the Federal Government.
    Comparing the state’s total debt stock against its IGR of N24 billion, shows that the state’s annual IGR is just 12% of domestic debt accrued.

    Top 10 most indebted states in Nigeria

  6. Osun State: Osun State’s total domestic debt as of March 2019 was estimated at N147 billion. Compared with the state’s IGR of N10 billion, it means that Osun state’s IGR only covers 7% of the domestic debt owed. In total, Osun State owes a total debt of N178 billion to rank 6th on the list.
  7. Federal Capital Territory (FCT): The FCT is the 7th most indebted state in Nigeria. As at the end of March 2019, the domestic debt accruable to the state was estimated at N193 billion. On the other hand, IGR generated in the year 2018 was N65 billion. This implies that FCT’s revenue covers just 40% of its domestic debt. The total domestic and external debt owed by the federal capital stands at N173 billion.
  8. Edo State: This is the 8th State with the biggest debt accumulated in the country. Edo State’s domestic debt stands at N88.3 billion, with IGR puts at N28.4 billion. This means the State IGR only covers 32% of the domestic debt only. In total, Edo state owes N171.2 billion.
  9. Kaduna State: Kaduna State is one of the main commercial cities in Northern Nigeria. According to the debt statistics, the state’s domestic debt profile was estimated at N121 billion, with IGR estimated at N44 billion. This means that the state’s IGR can only offset 36% of the debt. In total, the state’s debt stands at N162.9 billion.
  10. Bayelsa and Ekiti State: These two states owe N150 billion each and thereby make the 10th on the list. Bayelsa State is one of Nigeria’s oil-producing states. Reports show that as at the end of March 2019, the state’s domestic debt stock was estimated at N147 billion, while its IGR in 2018 stood at N13 billion. This means that the state’s IGR only covers 10% of the huge debt profile. In total, Bayelsa owes NN150 billion.According to the DMO’s report, Ekiti State’s debt was also put at N150 billion in March 2019, with IGR estimated at N6.6 billion only in 2018. This means that its IGR can only offset 5% of its domestic debt of N118 billion.

The top 10 states with biggest domestic debt stock and their IGR

[READ: Lagos, Delta and other states received N1.57 trillion Federal Allocation in 7-months]

Some Critical challenges

According to the World Bank, 40% of low income developing countries are now either in debt distress or at high risk of default. The most severe problem facing public institutions in Nigeria is the fiscal issue (debt-revenue), and this problem has been provoked by a number of factors which include ‘over-dependence’ on borrowing for debt financing.

  • It is affirmative that most states in Nigeria have huge debt loads, with very low revenue generated. While debt is soaring, most states apparently depend on more debt to execute any meaningful developmental projects.
  • Lagos State records the largest IGR and simultaneously accumulates the biggest debt. Asides Lagos, most states depend on either more borrowing or monthly allocations from the Federal Government to even pay workers’ salaries.
  • Recently, in order to ease off the debt-revenue issue, states began to push for a review of the revenue sharing formula that would improve their share of monthly allocation.
  • Apparently, both the states and the Federal Government now largely depend on borrowing. This is appalling, as some states have plunged into huge debt without major infrastructural face-lifting.
  • Also, most of the debt acquired by these states are from external sources. Hence, from the monthly federal allocation given to the states, a portion of it is always deducted to service the acquired debt, while the huge debt remains.

The Way Forward

Globally, most third world and developing countries are faced with the scarcity of funds to finance major infrastructure projects. Meanwhile, in the Nigerian case, most states have basically resorted to debt financing, with little or no effort to improve their internal revenue base.

Sigma Pensions

It should be noted that debt is one of the ways to finance much-needed investments in infrastructure, human capital, or public works. However, good debt management is critical for these investments to be successful.

High debts always serve as barriers to economic growth and welfare in this part of the world. Hence, this situation calls for a proper rethink and redirection in the debt management policies of these states.

[READ FURTHER: Nigeria paid N293 billion to service external debt in half-year 2019]

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Buy what? Dangote vs BUA Cement

Dangote Cement has a market capitalization of N3.65 trillion, while BUA posts a N2.49 trillion capitalization, but does size win?



I want to review the performance of the largest quoted companies in Nigeria.

On the Nigerian Stock Exchange, they don’t come any bigger than Dangote Cement (Dangote) and BUA Cement (BUA). Only MTNN stands with both cement companies in terms of market capitalization. Dangote and BUA are both blue-chip companies, in the same sector and both enjoy federal import protection, they also both serve a local market with huge demand for cement.

Which is a better investment? Let us assume I have N100,000.00 (One Hundred Thousand Naira,) which should I buy? Let us review both stocks with FY 2020 results they posted. For consistency, I am going to use my trading view terminal numbers.

READ: Dangote Cement joins MTN in the trillion-naira club, as 2020 revenue surpassed N1 trillion

Market Capitalization

First, we talk about capitalization, (Market cap is the number of shares issued x market value of shares ). Dangote Cement has a market capitalization of N3.65 trillion, while BUA posts a N2.49 trillion capitalization. Does size win? Dangote is bigger? Not yet!

Market Price

With N100,000 I can buy about 465 shares of Dangote at N215 a share and 1,360 shares of BUA at N73.50 per share. Is BUA cheaper? do we have a winner? Not quite. Let us dig deeper.

Dangote Cement posted a Net Income figure of N276 billion, if we divide this earning by the number of issued shares which is 17 billion, we get an Earnings Per Share (EPS) of N16.14, so every share of Dangote Cement earns (not pays) the investors N16. Similarly, the Earning Per Share of BUA is N2.0

READ: BUA Cement loses N162 billion in market value in a week

Sigma Pensions

Thus when I buy Dangote Cement N215 per share, I am buying 16 times the earnings of Dangote. We can simplify this by simply comparing the price I pay per share of Dangote to the EPS of Dangote (Price to Earnings Ratio), thus I invest my cash of N215 to buy 16 times the earnings of Dangote, thus the Price to Earnings Ratio of Dangote is 13.31 (P/E). Using the same calculation, the price for each earnings of BUA (the P.E.) is 35.38. This means even though I am paying more cash for each share of Dangote, I am paying less to buy the earnings of Dangote, thus Dangote is cheaper than BUA.

So our first milestone is reached, we have used the Net Income, Market Price, and Number of Issued shared to get the Earnings Per Share, we have then determined what amount of earnings we are buying to determine which stock is at a bargain.

READ: Oba Otudeko’s stakes in Firstbank and Honeywell are worth over N10 billion

What else?

Let us look at the earnings that will be paid in cash. Remember, Earnings, is just the Net Income of Dangote, we as equity holders have the opportunity to share in any portion of the Net Income.

Dangote in 2020 paid out from earnings N272.69 billion as dividends, this translates to about N16 per share or in terms of returns 7.44%. We get this Dividend Yield return by comparing the dividend paid to the market price per share (D/P). BUA also in 2020 paid out N59.26 billion as dividends from earnings, this translates to a dividend yield of 2.81%.

Stanbic 728 x 90

So, if I invested N100,000 in shares of Dangote Cement, I would earn a cash return of 7.44%, if I did the same with BUA I would earn a cash return of 2.81%.

READ: Jumia: In search of the elusive break-even sales

Let us go a bit deeper…

When you buy a stock, you are buying into the earnings and cash flow. Dangote Cement in 2020 earned N276 billion and paid N272 billion as dividends meaning they retained about N3 billion for that FY while generating over N248b in Free Cash Flow. Similarly, BUA earned a net N71.52 billion, paid out N59 billion in dividends, retained N19 billion but posted a negative Free Cash Flow of (N95.49 billion). Should BUA cement have simply used that cash to finance working capital rather than paying it as dividends? Perhaps. Let us speak more of Cash flow.

Cash retained is cash not paid to you the investor. You have to ask how well your company is utilizing that cash retained. Should it all be paid out as dividends? Or retained in the company to fund expansion and growth?

READ: Three things Nigerians can learn from Warren Buffet’s latest letter

Look at it this way, if Federal Government Bonds were offering a Yield of 15% and we see that Dangote is offering a yield of 7.44%, then as shareholders you should demand that Dangote pays more cash to you to allow you to invest in FGN bonds because you get a higher return (at lower risk). The point is any company retaining cash or paying cash at a lower yield than the market is hurting the investors, who are missing the opportunity of investing higher elsewhere.

Let us score both company managers by how well they have managed the revenues and capital of the companies


 Return on Assets %Return on Equity %Return on Invested Capital %EBITA Margin %Net Margin %Debt to AssetsLong Term Debt to Assets
Dangote Cement14.6231.2126.9244.0424.310.240.08
BUA Cement11.1519.1215.3541.8732.030.360.23
FY 2020

Across the board, the management of Dangote Cement has done a better job when compared to BUA Cement in managing the assets of the company. Dangote Return on invested capital is higher with a much lower recourse to debt and of course a higher FCF number.

Overall, on Earning, Returns and Efficiency, it appears Dangote Cement posts better fundamentals…



Do follow @FinPlanKaluAja1

This is not investment advice, this is not a recommendation to buy or sell. Past performance is not a guarantee of future performance. Speak with your adviser before investing. Equity is risky.

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Is something fishy going on at Custodian Plc?

Custodian stock hit a year high just as it announced a Convertible Loan Instrument set to be approved at its AGM.



Custodian Investment Plc. announces board meeting and closed period, Custodian Investment Plc. announces board meeting and closed period

Custodian Plc, one of the largest insurance companies in Nigeria is currently trading at a new year high of N7.10 and is up 21% year to date. Nairametrics Blurb team has in recent days noticed an upsurge in its share price especially since the company announced its AGM.

As we pen this article, about 2.9 million units have exchanged hand at a share price of N7.

The stock is included in the Pension Index and by some measure quite illiquid. It is also one of the stocks recommended in our Premium Service Stock Select Newsletter thus the need for further introspection.

READ: Buy what? GTBank vs Zenith Bank

Custodian Investment AGM

Typically, when companies announce AGMs we are keenly curious as this is where decisions that can ultimately affect shareholders (especially smaller retail investors) are approved.

In its recent filings, the company stated as follows in item 10.

That the Board of Directors of the Company be and is hereby authorised to:

(a) raise the Naira equivalent of up to $15,000,000.00 (Fifteen Million US Dollars), as additional capital through a convertible loan instrument;

Sigma Pensions

(b) convert the loan in the Naira equivalent of up to $15,000,000.00 (Fifteen Million US Dollars) into shares in the Company (the “Conversion Shares”) at a conversion price, being the higher of N6 per share or the 12-month historical average daily share price of the Company derived from the Daily Official List of The Nigerian Stock Exchange (for the period ending on March 23, 2021), subject to adjustment upon the occurrence of certain adjustment events;

(c) allot the Converted Shares to the Lender upon the exercise by the Lender of its right to convert the Loan into shares in the Company, subject to applicable law; and

(d) take steps necessary or reasonably desirable to give effect to the foregoing resolutions and for effecting any transactions pursuant thereto, including the appointment of professional advisers, and the obtention of relevant regulatory approvals.

READ: Notore Chemicals is swimming in debts – company to access equity market in Q2 2021

What this means?

In simple English, the directors of Custodian are seeking the approval of its shareholders to borrow $15 million (N6.1 billion) in convertible loan instrument.

Stanbic 728 x 90

A convertible loan instrument is simply a loan that you can convert into shares if the lender so wishes. The share price for conversion are predetermined and in this case, they stated N6 per share or the 12-month historical average daily share price of the company’s stock.

If the lender does decide to convert the loans to shares at the current share price of N6 per share, it means about 1 billion shares will be offered to the lender, an equivalent of 17.4% of the total outstanding shares of the company. This loan is in effect, a potential dilution of existing shareholders of the company if it is approved at the AGM.

So why is the company seeking a convertible loan or even diluting its shareholders?

READ: Gains on quoted investment stocks rescued Custodian Investment Plc from loss in Q3 2020

Fishing around for why

Typically when a company decides to raise money via a convertible loan instrument, they are looking for lower interest rates, debt that avoids the burden of periodic repayment, and/or looking to delay when the actual equity is issued. There are also tax considerations at play but not as significant as the ones mentioned above.

Except, Custodian is looking to purchase another asset, after it bought UPDC, we do not understand why it will be looking to raise capital huge enough to dilute existing shareholders. It also did not explain why it is seeking to raise the said capital in its AGM Notice, a slight departure from the norm in cases like this.

  • Custodian is also highly capitalized with a Net Asset of about N46 billion and a balance sheet size of N176.1 billion (after the acquisition of UPDC) as of 2020.
  • Suffice to add that the company recently paid shareholders about N2.6 billion in dividends, making us wonder why it is seeking to dilute shareholders when it could have just ploughed that amount to its capital raising needs.
  • In fact, the dividends paid in 2020 was just 21% of profits, meaning it had retained about N10 billion in profits made during the year. Again, why does it need N6.1 billion in loans?
  • Custodian also has a thriving insurance business which fetched it about N58 billion in gross premium income out of which N32 billion was from non-life. Again, why does it need N6.1 billion on convertible loans?
  • The company currently carries a debt of about N5.5 billion which was inherited from its acquisition of UPDC. The debt is mostly a bond issued at an interest rate of 16% per annum and due for full liquidation in 2023.
  • There is no rush to pay down this debt.

READ: NPF Microfinance vs C&I Leasing: A tale of two rights offer

What then?

We are lost as to why the company is looking to raise this capital and can only now think of two reasons. Firstly, could it be the existing shareholders looking to tighten their stake in the company? Custodian’s majority shareholders are Gratitude Capital Limited and Mikeade Investments Limited with 22.48% and 15.72% respectively.

  • The company CEO Oluwole Oshin represents Gratitude Capital while Business Mogul Micheal Ade (Elizade) owns Mikeade Investments Limited. Could it be either of these two investors looking to up their stakes?
  • There could also be a reason for this back door approach. About 74.5% of the company is owned by just 20 shareholders so it is clear that increasing majority stake will be difficult to achieve.
  • The other reason is perhaps an institutional investor looking to acquire a significant stake in the company through the backdoor. Is this plausible?

READ: Investors react to Fidelity’s bond listing, as it gains N1.74 billion

Well, these are speculations that only Cusdotian can confirm. We hope they do so as soon as possible.


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