The Lagos State House of Assembly has explained the reason why approved Governor Babajide Sanwo-Olu’s request for N85 billion Special Dispensation Bond as well as N85 billion Bridge Loan.
This is in pursuant to the approval of Bonds, Loans and other Security Law of Lagos State 2015, and comes at 9.25 per cent per annum to bond financing programme.
At a sitting on Monday, the chairman of the Committee on Finance, Hon. Rotimi Olowo, stated that the committee examined the request for a special dispensation, enquired into the debt profile of the state and ascertained the source of the fund for repayment and refinancing.
Olowo said based on briefing and documents received, the redemption of bonds would allow for extension of maturity of the same with a two-year moratorium in 2031, and that the special dispensation approval would enable the state earmark for capital projects.
Addressing journalists after the approval, Hon. Olowo explained that the request from the governor had two aspects.
The first was for an approval for Bond Bridge Loan, which would allow the state to access the bond market as soon as possible; while the second aspect is a loan from a commercial bank at the interest rate of 9.25.
Olowo said that as at February this year, the federal government went to the bond market at a coupon rate of 12 per cent, and that in June it had increased to 13.5 per cent.
He also said that comparing the rate with the bond secured by the state government in 2016 and 2017, the least of all was 16.6 per cent, and the highest was around 17.25 per cent.
Olowo said the opportunity the market provides is enough for the state to access it now, adding that the state would be able to get the rate cheaper.
He explained: “When you look at our Consolidation Debt Service Account (CDSA), we have about N22 billion and we are talking N101.2 billion in the next two or three years.
“It will amount to a lot of pressure on our debt obligation. So, what we thought is necessary is that we should quickly access the bond market with the approval of the House so that we can get it at a cheaper rate, and it will be for 10 years with a two-year moratorium.
“What it means is that, in the next two years after securing the bond, we will not pay any money. We will not pay the interest and the capital; it will be like a tax holiday. It will relieve the state of the burden of sourcing for money to pay the creditors.
“On the second aspect, if today we don’t access the commercial loan from one of the banks at a single-digit of 9.25 per cent, we will still be losing because what we will still access, we will pay the holders of the bond between now and the next one month. That means we have been able to save money worth an average of N1.5 billion in the form of a seeking fund to be able to make up by 2023.
“So, if we don’t pay that in the next three years, what it means is that we have gotten a saving of about N75 billion.
“It is obvious that there cannot be a better time for the state to go for the bond market which we call ‘Special Dispensation Bond’ and the second is a loan from a commercial bank at the interest rate of 9.25 per cent, which is very cheap.
“That is the reason the Assembly speedily supported the executive. We always want to support the executive when it comes to infrastructure.”