Some state governments are considering bond sales to replace dwindling income from crude, the Director General of the Securities and Exchange Commission (SEC), Mounir Gwarzo, has revealed. Bloomberg quoted him as saying, “I know one or two states have started talking to investment banks in view of coming to the capital market. 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 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 per cent since June last year. The Federal, state and local governments agreed to share a $2.1 billion dividend paid into the Treasury by the Nigeria Liquefied Natural Gas Limited (NLNGL) to pay wages and meet their financial obligations. In addition, the Debt Management Office (DMO) will restructure more than N660 billion ($3.3 billion) in commercial loans taken by the state governments. 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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