SEC Approves Ondo’s N27bn Bond Issue

DG_SEC_Arunma_Oteh

Barring any unforeseen circumstance, the number of state government bonds in the capital market will soon hit a new high as the Securities

Barring any unforeseen circumstance, the number of state government bonds in the capital market will soon hit a new high as the Securities and Exchange Commission (SEC) has approved the bid by the Ondo State Government to raise ($170 million) N27 billion from the bond market.

The Ondo State bond is a N50 billion Medium Term Note Issuance Programme. The N27 billion to be raised now is the first tranche of this bond offer.  The offer, THISDAY gathered, will run at 14 per cent fixed rate with seven year tenure.  THISDAY checks revealed that the state government has an Irrevocable Standing Payment Order (ISPO) from the federal finance ministry.

An official of the state who did not want his name mentioned, said the proceeds would be allocated to infrastructure and other major developmental efforts of the Ondo State government.

The official enthused: “This is a welcome development in Ondo State. We are very proud to be amongst the agents of change. There will be transformational change in terms of infrastructural development, which will impact positively on the people of Ondo State. This landmark transaction will revolutionise the state.”

He further revealed that the state governor runs transparent structure, saying: “Participatory governance and accountability are being implemented by the present administration, while motivating the citizens with ideas for better productivity and creating intellectual bank for policy formulation and implementation.”

According to the Central Bank of Nigeria (CBN) data, Internally Generated Revenue (IGR) accounted for just 5.5 per cent of the state’s total revenues of N69.6 billion in 2010. Capital items accounted for 28 per cent of total spending. The state was therefore able to post a surplus of N7 billion in the year.

The CBN data also revealed that the state’s debt amounted to N9 billion in 2010 or 13 per cent of revenues. It was predominantly foreign currency, and thus guaranteed by the FGN.

While warning of the risk of changes to the formula for the distribution of federation account revenues, analysts at FBN Capital Limited said they were optimistic that the bond issue would succeed.

“That said, the low indebtedness of the state government, the ISPO and the appetite of domestic institutions for fixed income assets all suggest that the issue will be a success.

“We understand that the state government forecasts average annual growth of 10 per cent in IGR over seven years: IGR would rise to 13 per cent of total revenues by 2018 on the basis of higher personal tax payments from an increase in the state government workforce and from efficiency gains. We are not sure how far the new minimum wage will allow recruitment, “said FBN Capital.

Meanwhile, the Director-General of SEC, Miss Arunma Oteh had re-emphasised the importance of capital market fund in financing developmental projects.

In a chat with journalists recently, the SEC boss had said the market was a source of a veritable medium and long-term fund, which were good for financing developmental projects.

She also explained that capital importance was more than funding as it made government and firms accountable and transparent in project financing and fund raising.

“The capital market provides avenue for everyone to access and assess books of funds seekers. It also makes institutions to respect good corporate governance principle,” she said.