The Lagos State House of Assembly has approved Governor Babajide Sanwo-Olu’s request to access N85 billion Special Dispensation Bond from the bond market to finance capital projects in the state.
The state legislature also approved the governor’s request to collect a loan from a commercial bank at the interest rate of 9.25%.
The grant of approval was disclosed by the Chairman of the House Committee on Finance, Rotimi Olowo, to the House of Assembly Correspondents on Tuesday in Lagos, according to a report from the News Agency of Nigeria (NAN).
Olowo said the governor’s request had two aspects namely the request for approval for a Bond Bridge Loan which would allow the state to access the bond market as soon as possible and the second was a loan from a commercial bank at a very cheap interest rate of 9.25%.
He said that the House was quick to approve the governor’s request since it was for the implementation of infrastructure development in the state adding that there could not be a better time than now for the state to go for the bond market which he called Special Dispensation Bond.
What the Chairman House Committee on Finance is saying
Olowo explained that as of February this year, the Federal Government went to the bond market at a coupon rate of 12%, noting that this had increased to 13.5% by June this year.
While recalling that the state government had in 2016 and 2017 secured bonds for between 16.6% and 17.25% respectively, the lawmaker said that the market at the moment provides enough opportunity for the state to access the bond at a cheaper rate since the current bond of the state would mature in 2024.
Olowo said, “When you look at our Consolidation Debt Service Account (CDSA), we have about N22 billion and we are talking N101.2 billion in the next two or three years.
It will amount to a lot of pressure on our debt obligation, so what we thought is necessary to quickly access the bond market with the approval of the House so that we can get it at a cheaper rate and it will be for 10 years with two years moratorium.
What it means is that in the next two years after securing the bond, we will not pay any money. We will not pay the interest and the capital, it will be like a tax holiday. It will relieve the state of the burden of sourcing money to pay the creditors.
On the second aspect, if today we don’t access the commercial loan from one of the banks at a single-digit rate of 9.25 per cent, we will be losing because we will still have to pay the holders of the bond between now and the next months.
That means we will have been able to save money worth an average of N1.5 billion in form of seeking fund to be able to make up to 2023.”
What you should know
It can be recalled that in January 2020, the Lagos State Government made financial history as it announced the issuance of a N100 Billion Series III Bond, under its N500 Billion Bond Issuance Programme.
The Programme is Lagos State’s third Bond Programme; the State having previously issued Bonds under N107.5 Billion and N167.5 Billion Programmes.
At the conclusion of the Book Build, the offer for the up to N100 Billion Bond Issuance recorded an oversubscription at 196.5%. the strong response to the present administration’s debut bond issuance is a testament to continued investor confidence in Lagos State and the State’s strong credit profile.
The N100 Billion Bond is the largest bond issuance in our domestic capital markets by a sub-national government, and this issuance is only the second time a 10-year instrument has been issued by a non-sovereign issuer. Lagos State issued the first 10-year Bond in 2017.
