Nigerian States Mulling Bonds as Revenue Falls, Regulator Says

Some Nigerian state governments are considering bond sales to replace dwindling income from crude, the source of about 70 percent of the revenue of Africa’s biggest oil producer.

“I know one or two states have started talking to investment banks in view of coming to the capital market,” Mounir Gwarzo, Director General of the Securities and Exchange Commission, said in telephone interview on Tuesday from Abuja, the nation’s capital. “Given their financial situation the capital market is the best avenue for them, because some of them have lots of loans from commercial banks.”

Some of the 36 states constituting Africa’s largest economy are unable to pay employee wages after their share of the nation’s oil income, which accounts for bulk of their budgets, declined. Crude oil prices have slumped by more than 50 percent since June last year.

Nigeria’s federal, state and local governments agreed to share a $2.1 billion dividend paid into the Treasury by Nigeria LNG Ltd., the nation’s producer of liquefied natural gas, to pay wages and meet their financial obligations, presidential spokesman Femi Adesina said yesterday. More than 660 billion naira ($3.3 billion) in commercial loans taken by the state governments will be restructured by the Debt Management Office, Adesina said.

‘Very Excited’

Although no state has yet applied to the SEC to sell bonds this year, some state governors have discussed the possibility with the commission, Gwarzo said, without naming any.

“They’re very excited about it,” Gwarzo said. “If they restructure the commercial loans it will give them breathing space and temporary liquidity to pay salaries and allowances.”

The SEC plans to start separate meetings with the states this year, which will be a forum to educate the leadership “about the importance of capital market,” Gwarzo said. “Once the instruments are good and investors are comfortable, we believe they will invest,” he said referring to state bonds.

The commission requires a debt-to-revenue ratio of 50 percent or less for states tapping the market, Gwarzo said.

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