LASG Launches N50 Billion 2nd Tranche Fixed Rate Bond
“It is the most assuring vote of investor confidence in the Lagos and Nigerian project”, says Fashola
Mar 23, 2010 - The Lagos State Government Monday launched the second tranche of its Fixed Rate Bond of N50 billion with the State Governor, Mr. Babatunde Fashola (SAN) describing the event as an assuring vote of investor confidence in the economy of the State.
The second tranche or Series 2 of the State’s Fixed Rate Bond is the second part of the Bond issued by the State under its N275 billion Debt Issuance Programme which was first launched in 2008. It has a seven-year life span, 2010 – 2017. The first tranche has a span of five years which expires in 2013.
Addressing the gathering of bankers, financiers and captains of industry who constitute the State’s Joint Financial Advisers/Issuing Houses, investors, members of the State Executive Council and top Government functionaries at an Investor Forum at the Civic Centre, Victoria Island, Governor Fashola said the launch carries a strong message of domestic investor confidence in the opportunities that lie in the State’s economy and the prospects for the future.
The Governor, who thanked all the State’s regulatory agencies and advisers, particularly expressed deep gratitude to his immediate predecessor, Asiwaju Bola Ahmed Tinubu “for his continuing support and useful counsel to me personally and my team as a whole as we negotiated the financial twists and turns to get to this destination”.
According to the Governor, “The event is historic because this is the first time, to my knowledge, that any sub-national Government in our country will float two bonds in succession during one tenure”, adding that it represents a departure from the era of capital fight from the economy.
“It demonstrates a new era of self confidence and belief in ourselves, away from the proverbial search for foreign investment. I feel truly privileged to be part of this turn around of fortunes that validates my belief that this State, our country and our continent should take the first bold steps towards re-shaping and re-ordering our destinies”, the Governor said.
Governor Fashola said the second tranche would help his administration keep the confidence of investors, both domestic and foreign and sustain the hope by continuing the many pending projects such as roads, schools, hospitals, water supply, jetties, light rail, Lagos-Badagry Expressway, Lekki-Ikoyi Bridge and more.
He declared, “As long as we keep hope alive, the opportunities are endless. More people will have jobs; more people will pay taxes, the investment returns is secured and guaranteed. The State’s ability to support its growing population by providing infrastructure necessary to support legitimate quest for opportunities remains assured and this places her in a position to compete for global opportunities”.
On the performance of the first tranche opened in December 2008, Governor Fashola, who said it was over-subscribed, declared, “The micro-economic impacts are being measured in the roads we have financed which is improving travel time; it is evident in the children and women hospitals, three of which now give us 300 bed spaces to ensure that women and children do not die at childbirth; it is evident in the recently commissioned water projects that have added over 50 million gallons of water to the supply stock in the State; it is evident in the new classroom blocks, the delivery of desks and chairs for teachers and students as a commitment to develop a human capital resource for our State’s future”.
“Our economy has continued to record encouraging signs of growth and it can only get better. Our judicious application of the proceeds of the first tranche of N50 billion has not gone unnoticed internationally and locally. Our State’s international (which is the same as our sovereign) rating and local credit ratings remain at BB- (Fitch) and A+ GCR respectively and increasingly, business and trade delegations are visiting Lagos to explore and pursue business partnerships and investment opportunities within our economy”, he said.
On the local scene, the Governor said, investors have taken benefit of an expanded investment bouquet that is helping local businesses such as construction companies remain in business and keep jobs for hundreds of thousands which enables them to get food on the tables, keep children in schools and witness a daily improving standard of living.
In his Investor Presentation at the event, the State’s Commissioner for Finance, Mr. Rotimi Oyekan gave an overview of the State’s N275 billion Bond Issuance Programme saying it is aimed at accelerating the achievement of the 10-Point Agenda of the State, “through the issue of medium to long term Bonds”.
The Commissioner further explained, “This second tranche issuance is a NGN50 billion seven-year Fixed Rate Bond with a coupon band of 13 percent to 14.5 percent”. The first tranche had a coupon of 13 percent.
Oyekan who said the bond will be subscribed to at the rate of N1, 000 per unit further explained that the interest and redemption payments are to be funded directly and solely from the State Government’s Internally Generated Revenue (IGR) as, according to him, “The enabling law requires that 15 percent of IGR be credited to the Consolidated Debt Service Account (CDSA)”.
“A sinking fund will be created and funded from the CDSA. The Sinking Fund is managed by Trustees who will pay Bondholders as and when due” the Commissioner said pointing out that the State has not issued an Irrevocable Standing Payment Order (IPSO) for Series 2 Bonds.
He reiterated that 75.54 percent of the proceeds from the sale of the Bonds would be used to finance on-going infrastructural Projects while 24.46 percent would go for the refinancing of outstanding loans.
Explaining that the coupon on Bond is tax exempt, Oyekan reiterated that the Bond, rated A+ by both Agusto & Co. and GCR, would guarantee robust security structure for the investors, attracting yield for investors at 370 to 520 basis points.
The Commissioner, who stated that IGR remains the State’s main source of revenue, putting it at 76 percent of total revenue, declared, “The improved living environment, a result of infrastructural renewal, has prompted greater tax responsibility amongst residents in the State”, adding that over the next few years, increased revenues from fines, fees and licenses, increased business and tolls from new infrastructure and the successful execution of the State’s 10-Point Agenda are the factors expected to drive the economic growth of the State.
He listed the key transformational projects which, according to him, are central to the successful implementation of the 10-Point Agenda of the State Government to include, Lagos Urban Rail Mass Transit (LRMT) Scheme (Iddo to Ijoko via Okokomaiko and Marina), which he said will introduce a Rail System to be used by an estimated 500, 000 passengers per day, Lekki Free Trade Zone, Lekki-Ikoyi Bridge and Expansion of Lagos-Badagry Expressway.
Answering a question by one of the investors during the question and answer session, Oyekan explained that as in the first tranche, the State has appointed 16 primary dealers for the purpose of the programme pointing out they provide market for bondholders, who may at any time before the expiration of the bond, decide to dispose of them. They include Access Bank Plc, Bank PHB, First Bank, Zenith Bank, Stanbic IBTC Bank, UBA Plc, Skye Bank and FCMB among others.
Earlier in his welcome remarks, the Managing Partner –Chapel Hill Advisory Partners, Limited, Mr. Bolaji Balogun, expressed delight that the State Governor, Mr. Babatunde Fashola (SAN), “has been working very hard and delivering quantifiable results”.
He declared, “The attendance given to this event today in spite of the short notice, is a testimony of the confidence we have in the transformation of the State”, adding that the second tranche of the Bond, though was delayed in coming, is welcome particularly at this time by the partners.
Also present at the occasion were representatives of the Joint Financial Adviser/Issuing Houses, members of the State Executive Council, Captains of Industry, investors and top government functionaries.