Low revenue, pension default scuttle States’ chances at debt market

There are clear indications that the Nigerian capital market may witness a significant decline in the number of sub-nationals that will access it for fundraising to finance long term projects through bond issuance against the practice in the last few years.

This is because many states in the country have recorded a significant decline in revenue and defaulted in the payment of pension and as such, can not obtain the pension compliance certificate which is a proof that the state is ‘up to date’ on employees’ remittances.

Indeed, the urgency to develop infrastructure in most states to foster revenue generation had made it imperative for them not to wait for federal government’s allocations before embarking on provision of such amenities for the masses.

However, in most of the states, the revenues are not enough to take care of recurrent expenditure let alone capital projects.

Therefore, the states have taken it on themselves to access the market for long-term funds, which can be used to provide some infrastructure and conducive environment for business to thrive.

But the Head, Investment Banking, United Capital Plc, Dr Gbadebo Adenrele said some states may find it difficult to access the market today due to poor revenue and failure to remit employee pension funds as and when due.

He pointed out that the pension regulations stipulate that any corporate or state that wants to access that N13 trillion pension fund must show a certificate of compliance.

“The pension fund does not really invest until they see that you pay your staff and employees’ pension regularly. How do you want to benefit from something you are not contributing to?

“The system is bogged down to also discipline the issuers; so if you have not been paying, you will not be able to access and once you are not able to access that kind of fund, you are reducing your chances of success.”

Recall that 13 states raised N346 billion revenue from bonds between 2013 and 2017, according to data obtained from the Securities and Exchange Commission (SEC).

An analysis of the data revealed that Lagos State Government topped the list with a total of N231.9 billion.

The state in 2013, issued N87.5 billion series 2 bonds under its N167.5 billion debt issuance programme at 13.50 per cent interest rate.

In 2013, Ekiti State Government issued a N5bn series 1 bond due 2020 under its N25 billion debt issuance programme.

It said the funds were used for the construction of roads, bridges, rehabilitation of Ire burnt bricks and the construction of the Ekiti-Kete pavilion.

Kogi State Government also issued a N5 billion series 1 bond due 2020 under its N20 billion-debt issuance programme.

The proceeds were used to finance infrastructure projects such as water works, housing units, multi-lane carriage way, construction of hospitals, development of Kogi House in the Federal Capital Territory and the development of modern motor parks.

In 2015, the state issued another N3 biln series II bond under its N20 billion debt issuance programme to be used for financing projects.

Niger State Government issued a N12 billion series 1 bond in 2013 while Osun State, through the Osun Sukuk Company Plc, issued a N11.4 billion bond in 2013, noting that the Al-Ijara Tranche 11 was under the state government’s N60 billion debt issuance programme.

The state said the fund was utilized for the construction of millennium model schools (elementary, middle and high schools).

Bauchi State Government in 2014 issued a N15 billion series 1 bond under its N30 billion debt issuance programme. It noted that the proceeds were used for part financing of Bauchi Specialist Hospital, the completion of Sir Abubakar Tafawa Balewa international airport and the refinancing of bank loans.

Nasarawa State Government issued a N5 billion bond in 2014, which it said was under the N20 billion MTN Programme.
According to the state, the funds were used for various developmental and infrastructural projects of the state such as the education project (hostel expansion) and market development project (complete construction).

In 2015, Benue, Cross River, Gombe, Oyo, Plateau and Zamfara states issued bonds worth N4.95 billion, N8 billion, N5 billion, N4.8 billion, N28.2 billion and N7 billion, respectively, among others.