The Lagos State Assembly has approved Governor Babajide Sanwo-request Olu’s for an 85 billion special dispensation for bond redemption as well as an 85 billion bridge loan for a quarter.
This is in accordance with the approval of the Lagos State Bonds, Loans, and Other Security Law of 2015, and comes at a rate of 9.25 percent per annum for the bond financing program.
The Chairman of the Finance Committee, Hon. At a meeting on Monday, Rotimi Olowo stated that the terms of reference of the request received from the executive arm appraise the request for a special dispensation; inquire into the State’s debt profile; and determine the source of the fund for repayment and refinancing.
According to Honorable Based on the briefing and documents received, Olowo, the redemption of bonds will allow for an extension of maturity with a two-year moratorium in 2031, and the special dispensation approval will allow the State to earmark funds for capital projects.
Hon. In a press conference following the approval, Hon. Olowo explained that the governor’s request had two components.
The first was for approval of a Bond Brigde Loan, which would allow the state to enter the bond market as soon as possible, while the second was for a loan from a commercial bank at a 9.25 percent interest rate.
Olowo explained that in February of this year, the federal government went to the bond market with a coupon rate of 12 percent, which had increased to 13.5 percent by June.
He also stated that when comparing the rate with the bond secured by the state government in 2016 and 2017, the lowest was 16.6 percent, with the highest being around 17.25 percent.
Olowo explained that the opportunity provided by the market was sufficient for the state to take advantage of it now, adding that the state would be able to obtain a lower interest rate and that the state’s current bond would mature in 2024.
““Looking at our Consolidation Debt Service Account (CDSA), we have about N22 billion, and we are talking about N101.2 billion in the next two or three years. It will put a lot of pressure on our debt obligations, so we thought it was necessary to quickly access the bond market with House approval so that we could get it at a lower rate for 10 years with a two-year moratorium.
“What this means is that we will not pay any money for the next two years after securing the bond. We will not pay interest or capital; it will be a tax holiday. It will relieve the state of the burden of finding funds to pay its creditors.
“On the second point, if we do not obtain a commercial loan from one of the banks today at a single digit rate of 9.25 percent, we will still lose because what we will obtain will be used to pay the bond holders between now and the next one month. That means we’ve been able to save an average of N1.5 billion in the form of seeking funds to be able to make it until 2023.
“So, if we do not pay that in the next three years, we will have saved approximately N75 billion. There is no better time for the state to enter the bond market, which we call a “Special Dispensation Bond,” and the second is a loan from a commercial bank at a very low interest rate of 9.25 percent. That is why the Assembly quickly supports the executive. “When it comes to infrastructure, we always want to support the executive,” Olowo said.