Contents I. I NTRODUCTION II. L AGOS S TATE D EVELOPMENT P LAN - - PowerPoint PPT Presentation

FUNDING 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

I. INTRODUCTION II. LAGOS STATE DEVELOPMENT PLAN III. FINANCING THROUGH THE DEBT CAPITAL MARKET IV. CONCLUSION

2

Contents

Introduction

N287 Billion

IGR (2016)

$91bn

GDP (2016)

A+

Credit Rating

Agusto & Co and GCR

> 65%

• f Nigeria’s

businesses

N1.1trn

spend on infrastructure in the last 8 years

2,000 manufacturing companies 200 financial institutions

• >23m residents, thus most populous city in Africa
• 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 is the commercial hub of Africa’s largest economy

4

Lagos State’s Development Plan is hinged on four pillars

Economic Growth: Wealth creation through employment for our people Soc Social al De Development & & Sec Security: Investing in people, health, education and security Sus Sustainable En Environment: Creating a green, clean and safe city Infr frastructure De Development: Long term investment in transportation, roads, power, housing and water

1 2 4 3

5

The Case for Infrastructure Development

Global Urban Population Densities (people/km2)

• 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.

Paris London Lagos New York 2,797 5,904 9,074 13,300

Source: WEF, LAMATA, Lagos State

6

Infrastructure Development…Journey so far

Schools Road Infrastructure Security Rail Infrastructure

The current administration has continued to improve on the State’s physical and social infrastructure

…the journey ahead: Project pipeline

7

Works and Infrastructure Projects Construction of roads, bridges and rail Tourism, Arts & Culture Projects Construction of Museums, Tourism Centres and Arts Theatres Health Projects Remodeling/Construction of Hospitals, Maternal and Child Care Centers, Supply of Hospital Equipment Waterfront Infrastructure Channelization of Ferry routes; Construction of Jetties and Shoreline protection Education Projects Construction/ and rehabilitation of schools; and provision of desks, chairs and science equipment Judiciary Projects Construction and rehabilitation of high courts Environment Sector Projects Cleaner Lagos Initiative Sport Commission Projects Construction of Stadia and recreation centers Youth & Social Development Sector Projects Construction of Old People’s Homes

8

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).

9

Accessing the Debt Capital Markets: Key Milestones

2008

Lagos State Registered 1st Shelf Programme

2012

▪ Registration of N167.5 bn Programme 2 (“P2”) ▪ Issuance of N80bn P2S1 bonds ▪ Completion of the Lekki-Ikoyi Link Bridge

1987/88

First Lagos State Bond Issuance ▪ ‘N30bn and N60bn Revenue Bond for the development of Lekki Peninsula

2013-14

Issuance of Programme 2 Series 2 ▪ Nov. 2013 – Issuance

• f N87.5bn P2S2 bonds

▪ Acquisition of Assets & Liabilities of the Lekki Concession Company

2009

▪ Feb. 2009 – Issuance of N50bn 1st series of bonds under Programme 1 (“P1”)

2002-07

▪ Issuance of N15bn bond (single issuance) ▪ First bond issuance by Lagos in 14 years

2010-11

Issuance of P1T2 ▪ April 2010 – issuance

• f N57.5bn P1S2 bonds

▪ Increase in IGR of over 86%

2015

▪ Redemption of the P1S1 Bonds ▪ Over 300 major road projects rehabilitated ▪ 66 major road projects at various stages of completion

2016

▪ Registration of the N500 Billion Debt Issuance Programme – Programme 3 (“P3”) ▪ Issuance of ₦47bn in the 1st series under P3.

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.

… Significant growth over the last 16 years, through judicious use of the domestic capital markets

10

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 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 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) 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 Book Build Offer for Subscription by way of a Book Build Offer for Subscription by way of a Book Build Security ISPO and CDSA ISPO and CDSA ISPO and CDSA

PROGRAMME 1 PROGRAMME 2 PROGRAMME 3

11

Strong Financial Fundamentals… support debt issuances

▪ IGR remains the main source of revenues at 67%, with Federal Transfers representing c28%. ▪ The main source of IGR is Personal Income Tax receipts (“PIT”) which represents about 57% of IGR. ▪ The improvement in living standards and the evolution

• f a conducive environment - a consequence of

infrastructure renewal - has prompted greater tax responsibility amongst residents in the State.

Internally Generated Revenue Q3 - 2016

82.53% 4.92% 2.69% 2.28% 1.84% 1.70% 4.04% TAXES FINES AND FEES LAND USE CHARGE EARNINGS OTHER CAPITAL RECEIPTS MVAA WEIGHTING AND ADMINISTRATIVE FEESS OTHERS 28 34 41 62 83 130 178 173 187 209 246 275 268 287 183 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 H1 2017

Internally Generated Revenue N Billion (2003-2017)

Source: Lagos State Government Financial Statements

12

Debt Capacity

Source: DMO, Lagos State Government Financial Statements

Total Debt Stock

The State’s credibility & good track has increased the appetite of both local and foreign investors

Debt Service / Revenue

Significantly less than the benchmark…

Debt / Revenue

Well within benchmark; room to raise further debt

Breakdown of Total Debt Stock, 2016 Debt / GDP IGR as a % of Revenue

Increasing IGR growth on the back of robust tax collection, and in spite of unstable statutory allocations Bank Borrowings 16% Bonds 19% Multilateral 65%

20% 2.0% 2.5% 2.1% 1.8% 2.0% 2.7% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00%

Benchmark 2011 2012 2013 2014 2015 2016

61% 60% 61% 62% 63% 70% 72% 0% 20% 40% 60% 80% 2010 2011 2012 2013 2014 2015 2016

105 126 146 216 368 464 184 276 388 294 219 128

• 200

400 600 800 2011 2012 2013 2014 2015 2016

External Debt Domestic Debt

250% 51% 113% 104% 123% 186% 0% 50% 100% 150% 200% 250% 300% Benchmark 2012 2013 2014 2015 2016 30% 17% 4% 13% 12% 13% 0% 10% 20% 30% 40% Benchmark 2012 2013 2014 2015 2016

Debt ratios within benchmark, sufficient headroom to raise additional debt

13

Case in point: Lagos State N500 Billion Debt Issuance Programme

• The successful issue of the first and second series under the new Programme is an

indication of the continued investor confidence in Lagos State, despite the current economic challenges faced by the nation.

• The most recent Series 2 issuance (completed in August 2017) was the first Dual Tenor

issuance by a sub-national.

• This was also the first time the issuance of a 10 year instrument would be undertaken by a

non-sovereign issuer, thus extending tenors in the domestic non-sovereign market.

• A total of N132 bn out of the N500 bn has been raised in less than 1 year.
• Significant participation by PFAs (52%) and Banks (37%)
• The proceeds of the bond will enable the state fund various physical and social

infrastructure projects.

14

Conclusion

• To enhance the growth and development of Lagos State, the government is committed to

the execution of the Lagos State Development Plan with focus on vital sectors such as Power, Works, Road, Housing, Health, Youth Development and Education etc.

• In the face of the current needs of the State, the Government cannot fund all the critical

infrastructure that the State’s economy needs to meet the challenges of the coming decades; neither can this development be accelerated.

• Lagos State is a responsible issuer and the Debt Capital market provides a steady and solid

source of funding for the State.

• On a final note, Lagos State would not be confident of accessing the domestic debt capital

markets if a strong investor base did not exist and we must appreciate the support from the investors especially the PFAs and asset managers/trustee companies. The Honourabe Minister of Finance, DMO and SEC have also been very supportive of our initiatives and we are appreciative of the support.