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Nigeria’s Lagos State Starts Price Discovery on Bond Sale

Nigeria’s Lagos state, home to the country’s commercial capital and sub-Saharan Africa’s biggest city, started a process to gauge investor interest in its proposed seven-year 80 billion-naira ($507 million) bond sale.

Coupon guidance has been given at 12.75 percent to 14 percent with order requests closing on Nov. 19, Jude Chiemeka, chief executive officer of Lagos-based Chapel Hill Denham Securities Ltd., the sale’s lead book-runner, said by phone today. The proposed size of the issue may change once the book-building process has been completed, according to a term sheet obtained by Bloomberg News.

The proceeds from the sale would be used to fund infrastructure projects including an urban rail line to help ease traffic congestion in Lagos, Governor Babatunde Fashola said in an Oct. 27 interview. Lagos state first issued debt in 2008, when it sold 50 billion naira of five-year securities with a 13 percent coupon. It concluded a 50 billion-naira, seven-year bond sale in April 2010 at a 10 percent coupon, according to data compiled by Bloomberg.

The planned sale comes after borrowing costs for Nigeria’s federal government dropped after JPMorgan Chase & Co. announced in August that it will add the country’s bonds to its GBI-EM index series from Oct.1. The yield on the 16.39 percent federal government naira debt due 2022 has dropped 339 basis points to 12.74 percent since the start of August, according to data compiled by the Lagos-based Financial Markets Dealers Association.


The smallest in land area of Nigeria’s 36 states, Lagos is the most densely populated, with about 22 million people living in the metropolitan hub, up from about 17 million in 2006, according to the state government. The regional government is investing in infrastructure to meet the needs of a population it estimates is increasing at 3 percent a year.

“When you commit the funds to a certain visible project, the debt tends to cost less so I think this is a good idea,” Alan Cameron, an economist at CSL Stockbrokers Ltd. in London, said in an e-mailed reply to questions. “It seems clear that there will be decent demand for such a bond issue -- I could see it pricing in line with the sovereign.”

Projects to ease the city’s traffic congestion include the rail system, which needs a further $1 billion in financing. That project has stalled due to a shortfall in state funds, according to Fashola.

Just over half of the state’s $3.1 billion budget this year is dedicated to capital expenditure. That compares with 29 percent share of spending at the national level. Lagos’s economy is forecast to grow at a rate of 8.3 percent in 2012, according to the state government, more than the national rate of 6.5 percent.

The naira has advanced 2.8 percent this year to 157.875 to the dollar as of 2:29 p.m. Lagos time, the second-best performer in Africa, according to data compiled by Bloomberg.

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