The Lagos State Government has gone to the bond markets for new round of borrowings to the tune of N125 billion, however only 7 out of the 20 Local Government Areas (LGAs) in the State, will see impact in the form of infrastructure spending mainly on roads from the proceeds of the bond, according to documents from the bond offer seen by MoneyCentral.
The Lagos State Government says proceeds of the Issuance will enable it further accelerate the development of physical and social infrastructure in the State in line with the State’s THEMES Agenda.
THEMES is the acronym for Traffic Management and Transportation, Health and Environment, Education and Technology.
For now, however, that agenda will be restricted to the following LGAs; Eti Osa, Ikeja, Kosofe, Lagos Mainland, Ikorodu, Alimosho and Ajeromi Ifelodun.
Among the local government areas in the State that benefitted, Eti Osa LGA got the lion share of the bond proceeds with 5 road projects worth a total of N27.371 billion, this was followed by Kosofe LGA with 4 road projects worth N4.586 billion, Alimosho LGA with 1 project worth N2.703 billion.
Others are Ikorodu LGA with 2 road projects worth N2.245 billion, Ikeja LGA with 1 road project worth N1.479 billion, Ajeromi Ifelodun LGA with 1 project worth N1.160 billion and Lagos Mainland LGA with 1 project worth N632.6 million.
A further N82 billion from the bond proceeds will be used by the Lagos State Government to re-finance various bridge loans/facilities that have been obtained from respective Nigerian banking and financial institutions.
The sum of N2.819 billion or 2.255 percent of the Offer will be shared by the lead issuing house, underwriting firms and book runners as the Offer costs, including: Chapel Hill Denham, Alpha Morgan Capital Advisory Partners Limited, Apel Asset Limited, CardinalStone Partners Limited, Comercio Partners Capital Limited, Coronation Merchant Bank Limited, FBNQuest Merchant Bank Limited, FCMB Capital Markets Limited, Kairos Capital Limited, Kedari Capital Limited, Lead Capital PLC, NSL Capital Partners Limited, Phoenix Global Capital Markets Limited, Quantum Zenith Capital & Investments Limited, Radix Capital Partners Limited and Renaissance Securities (Nigeria) Limited.
The Lagos State Government Series IV Bonds of up to N125 billion under the State’s N500 billion Bond Issuance Programme was expected to close on Friday, December 3rd.
Sources however tell MoneyCentral that Lagos needs to sort out issues with its Pencom certificate for the bond offer to be successful.
MoneyCentral gathered that despite the increase in yields to entice investors, the bond offer could still not get up to N100 billion in bids from potential investors.
“You know for Pension Funds to invest in a bond, the Issuer needs to get a PenCom compliance certificate. The compliance certificate they have been using is the one they got on the Programme Documents almost 3 years ago. So, some PFAs were cautious of indicating interest because they feel the compliance certificate has expired and need to be renewed. Hence, their order book could not get N100 billion, despite interest to slightly review the yield/price,” a market source told MoneyCentral.
The offer which opened on Friday November 19, 2021 is a 10 years fixed rate Senior unsecured note with minimum subscription of N10 million, and multiples of N5 million thereafter.
The new bond offer will push the states total outstanding debt to N1.135 trillion, according to data from the bond documents.
Lagos State’s total identifiable liabilities stood at N1.07 trillion as at 31 December 2020, up by 12% from the prior year mainly due to an increase in commercial borrowings in the year under review.
Further analysis revealed that total borrowings (comprising internal, external debts and bonds in issue) accounted for 94% of Lagos State’s total liabilities as at FYE 2020, while payables and other liabilities, retirement benefit obligations and finance lease obligations represented 4%, 1% and 1% respectively.
As at the same date, the State’s total debt of N1.01 trillion (2019: N785.8 billion) consisted of foreign borrowing (54%) and domestic debt 46% (split into local bonds in issue 24% and internal commercial bank facilities 22%).
As at FYE 2020, Lagos State’s external debt portfolio comprised 25 facilities for various projects with different international institutions repayable in foreign currencies with an outstanding principal value of $1.43 billion (equivalent to N543.1 billion), with tenor between 20 and 40 years, moratorium periods of 5 and 13 years and concessionary interest rates between 0.75% and 2.37% per annum.
All the foreign debts are backed by irrevocable standing payment orders (ISPO) which serve as security for the facilities and outstanding balances are translated using the prevailing exchange rate at the reporting date.
As at 31 December 2020, Lagos State had 24 facilities with different local commercial banks, following repayment of 11 during the year, with a cumulative outstanding principal value of N226.7 billion at an interest rate of 10% to 12% per annum and average unexpired tenor above 36 months.