F UNDING LAGOS STATE GOVERNMENT ’ S ECONOMIC AGENDA THROUGH DEBT CAPITAL MARKETS Presented by Mr. Akinyemi Ashade Lagos State Commissioner for Finance 2017 Nigerian Debt Capital Markets Conference September 28, 2017
Contents I. I NTRODUCTION II. L AGOS S TATE D EVELOPMENT P LAN III. F INANCING THROUGH THE D EBT C APITAL M ARKET IV. C ONCLUSION 2
Introduction L agos State is the commercial hub of Africa’s largest economy A+ N287 Billion $91bn > 65% N1.1trn Credit Rating of Nigeria’s IGR (2016) GDP (2016) spend on Agusto & Co and GCR infrastructure in businesses the last 8 years 2,000 manufacturing companies • >23m residents, thus most populous city in Africa 200 financial institutions • Africa’s fastest growing market • 5th Largest economy in Africa • Contributes >30% of Nigeria’s GDP • Accounts for >90% of Nigeria's fx inflows 3
Lagos State’s Development Plan is hinged on four pillars 1 2 Soc Social al De Development & & Economic Growth: Security: Sec Wealth creation Investing in people, through employment health, education and for our people security 4 3 Infr frastructure De Development: Sus Sustainable En Environment: Long term investment in Creating a green, clean and safe city transportation, roads, power, housing and water 4
The Case for Infrastructure Development • Explosive increase in population at 5% p.a.; 123,000 people migrate to Lagos daily. • Current demand for trips in Lagos Metropolitan Area - by all modes (including walking) - is ~18 million per day, with over 7 million public transport passenger trips per day. • The rapid increase in population and standard of living is forecasted to bring the daily demand for trips to ~30 million per day by 2020 . • Traffic gridlock with > 240 vehicles per kilometer, compared to a national average of 11 vehicles per kilometer. • 10,000 metric tones of waste generated daily. • Lagos State is by far the largest consumer of power in Nigeria, the Ikeja and Eko distribution zones alone accounting for over 50% of the total electricity consumption in Nigeria. Global Urban Population Densities (people/km 2 ) 2,797 New York 5,904 Paris 9,074 London 13,300 Lagos Source: WEF, LAMATA, Lagos State 5
Infrastructure Development…Journey so far Rail Infrastructure Schools Security Road Infrastructure The current administration has continued to improve on the State’s physical and social infrastructure 6
… the journey ahead: Project pipeline Works and Infrastructure Judiciary Projects Projects Construction and rehabilitation of Construction of roads, bridges high courts and rail Tourism, Arts & Culture Sport Commission Projects Projects Construction of Stadia and Construction of Museums, recreation centers Tourism Centres and Arts Theatres Education Projects Health Projects Construction/ and rehabilitation of Remodeling/Construction of schools; and provision of desks, Hospitals, Maternal and Child chairs and science equipment Care Centers, Supply of Hospital Equipment Waterfront Infrastructure Youth & Social Development Sector Channelization of Ferry routes; Projects Construction of Jetties and Construction of Old People’s Homes Shoreline protection Environment Sector Projects Cleaner Lagos Initiative 7
The Immediate Financing Need Lagos State’s 2017 budget has N500 billion (cUS$1.6 billion) as capital spend. Infrastructure needs analysis shows that over $30 billion would be required to achieve the 30 most impactful projects over the next five years (an average of US$6 billion per annum). 8
Accessing the Debt Capital Markets: Key Milestones … Significant growth over the last 16 years, through judicious use of the domestic capital markets 2016 1987/88 2008 2010-11 2013-14 ▪ Registration of the Lagos State Registered 1 st First Lagos State Bond Issuance of P1T2 Issuance of Programme 2 ▪ April 2010 – issuance N500 Billion Debt Issuance Shelf Programme Series 2 ▪ ‘ N30bn and N60bn ▪ Nov. 2013 – Issuance of N57.5bn P1S2 bonds Issuance Programme – ▪ Increase in IGR of over Revenue Bond for the of N87.5bn P2S2 bonds Programme 3 (“P3”) ▪ Issuance of ₦47bn in ▪ Acquisition of Assets & development of Lekki 86% the 1 st series under P3. Peninsula Liabilities of the Lekki Concession Company 2017 ▪ ₦85.14bn issued in Dual Tranche - 7 and 10 year Bonds under P3S2 ▪ Pioneer Sub-national in the issuance of a 10 year Bond. 2002-07 2009 2012 2015 ▪ Issuance of N15bn ▪ Feb. 2009 – Issuance of ▪ Registration of N167.5 ▪ Redemption of the N 50bn 1 st series of bond (single issuance) bn Programme 2 (“P2”) P1S1 Bonds ▪ First bond issuance by ▪ Issuance of N80bn ▪ Over 300 major road bonds under Lagos in 14 years Programme 1 (“P1”) P2S1 bonds projects rehabilitated ▪ Completion of the ▪ 66 major road projects Lekki-Ikoyi Link Bridge at various stages of completion 9
Summary of Recent Issuances … Instrument Fixed ed Rate, e, 7-yea ear Bond nd (Ser eries es 1) Fixed ed Rate, e, 7-yea ear Bond nd (Ser eries es 2) Size N50,000,000,000 N57,500,000,000 PROGRAMME 1 Bond Rating A+ (Agusto & Co.); AA (GCR) A+ (Agusto & Co.); A+ (GCR) Issue Price At Par; N1,000 per unit At Par; N1,000 per unit Coupon 13% 10% Tax Status Tax Exempt Tax Exempt Distribution Offer for Subscription by way of a Book Build Offer for Subscription by way of a Book Build Security ISPO and CDSA (≥15% of the State’s IGR remitted monthly) ISPO and CDSA (≥15% of the State’s IGR remitted monthly) Instrument Fixed ed Rate, e, 7-yea ear Bond nd (Ser eries es 1) Fixed ed Rate, e, 7-yea ear Bond nd (Ser eries es 2) Size N80,000,000,000 N87,500,000,000 PROGRAMME 2 Bond Rating AA- (Agusto & Co.); AA- (GCR) A + (Agusto & Co.); AA- (GCR) Issue Price At Par; N1,000 per unit At Par; N1,000 per unit Coupon 14.5% 13.5% Tax Status Tax Exempt Tax Exempt Distribution Offer for Subscription by way of a Book Build Offer for Subscription by way of a Book Build Security ISPO and CDSA (≥15% of the State’s IGR remitted monthly) ISPO and CDSA (≥15% of the State’s IGR remitted monthly) Instrument Fixed ed Rate, e, 7-yea ear Bond (Ser eries es 1) Fixed ed Rate, e, 7-yea ear Bond (Ser eries es 2, Tran anche I) Fixed ed Rate, e, 10-yea ear Bond (Ser eries 1, Tran anche e II) Size N47,000,000,000 N46,370,000,000 N38,770,000,000 Bond Rating Aa- (Agusto & Co.); AA- (GCR) Aa- (Agusto & Co.); AA- (GCR) Aa- (Agusto & Co.); AA- (GCR) PROGRAMME 3 Issue Price At Par; N1,000 per unit At Par; N1,000 per unit At Par; N1,000 per unit Coupon 16.5% 16.75% 17.25% Tax Status Tax Exempt Tax Exempt Tax Exempt Distribution Offer for Subscription by way of a Offer for Subscription by way of a Book Offer for Subscription by way of a Book Build Book Build Build Security ISPO and CDSA ISPO and CDSA ISPO and CDSA 10
Strong Financial Fundamentals… support debt issuances ▪ Internally Generated Revenue Q3 - 2016 IGR remains the main source of revenues at 67%, with Federal Transfers representing c28%. 4.04% 1.84% 1.70% TAXES ▪ 2.28% The main source of IGR is Personal Income Tax receipts 2.69% FINES AND FEES (“PIT”) which represents about 57% of IGR. 4.92% LAND USE CHARGE ▪ The improvement in living standards and the evolution of a conducive environment - a consequence of EARNINGS infrastructure renewal - has prompted greater tax OTHER CAPITAL RECEIPTS responsibility amongst residents in the State. MVAA WEIGHTING AND ADMINISTRATIVE FEESS 82.53% OTHERS Internally Generated Revenue N Billion (2003-2017) 287 275 268 246 209 187 183 178 173 130 83 62 34 41 28 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 H1 2017 Source: Lagos State Government Financial Statements 11
Debt Capacity Debt ratios within benchmark, sufficient headroom to raise additional debt Total Debt Stock Breakdown of Total Debt Stock, 2016 Debt / GDP The State’s credibility & good track has increased the appetite of both local and foreign investors 25.00% Bank Borrowings 20% 800 16% 20.00% Multilateral 600 65% 15.00% 128 219 10.00% 400 294 388 2.7% 2.5% 5.00% Bonds 2.0% 2.1% 2.0% 1.8% 276 464 200 184 368 19% 0.00% 216 146 126 Benchmark 2011 2012 2013 2014 2015 2016 105 - 2011 2012 2013 2014 2015 2016 External Debt Domestic Debt Debt / Revenue Debt Service / Revenue IGR as a % of Revenue Well within benchmark; room to raise further debt Significantly less than the benchmark… Increasing IGR growth on the back of robust tax collection, and in spite of unstable statutory 300% 40% allocations 250% 30% 250% 30% 72% 186% 80% 70% 200% 63% 62% 61% 61% 60% 17% 150% 60% 20% 113% 123% 13% 104% 13% 12% 100% 51% 40% 10% 4% 50% 20% 0% 0% Benchmark 2012 2013 2014 2015 2016 Benchmark 2012 2013 2014 2015 2016 0% 2010 2011 2012 2013 2014 2015 2016 Source: DMO, Lagos State Government Financial Statements 12
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