The rarity of a state government issue


Tuesday, March 17, 2015 8:54 AM / FBN Capital Research


The local media reported on Friday that Gombe State had raised N5bn from the sale of seven-year debt instruments with a coupon of 16%. The issue, which represents the first instalment of a N10bn programme, is unusual for its rarity in the current environment.


Not only are interest rates unfavourable but federal finance ministry officials have also warned of the perils of state government bond issuance both before and since the slide in oil prices. Their concern stems from fears for state governments’ debt sustainability and for the utilisation of issue proceeds.


Gombe’s IGR/total revenue ratio of 15.2% in 2013 is unexceptional. The aggregate for all states in the year was 15.3%. We have chosen Lagos for the parallel in the chart so that Gombe can be compared with the best.

CBN data for 2013 show a N20.2bn overall deficit for Gombe and a N25.7bn current surplus (excluding capital spending, and direct deductions from the monthly statutory allocations for the external debt fund and irrevocable standing order payments).   

The ratings agency GCR estimated the debt of the state at N21.6bn at end-2013 and forecast a modest increase to N22.5bn at end-2014. 

It assigned an A-credit rating to the N5bn issue, which places Gombe on par with the latest issues by Niger, Ekiti and Ondo states.


Bond issues by state governments with the possible exception of Lagos carry a health warning: the secondary market is not liquid and investors often have to hold their investments until maturity. In this context, we note the comment in the local media that the issue attracted a total bid of just N5bn.  

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