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Why stakeholders endorsed bond option for Bayelsa State

By Peter Egwuatu
Following its deter mination to provide new infrastructure and improve on existing ones to attract industrialists, Bayelsa State government, few weeks ago held its inaugural town hall meeting to discuss and agree on the best funding options for the State. The different options that were thoroughly discussed included commercial bank loans, Public-Private-Partnership, donor funding, bilateral and multi-lateral financing and issuance of bond.

At the end of the highly interactive and educative meeting, it was collectively agreed by stakeholders present that the issuance of government bonds was the best option for the state to carry out further infrastructural and socio-economic development under the prevailing economic circumstance.

While making a presentation on the topic, ‘A Socio-Economic Transformation Agenda for Bayelsa State’ at the Town Hall meeting, a representative of KPMG, defined a bond as “a debt security, similar to an I.O.U. When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity known as an issuer”. In return for that money, the issuer provides you with a bond in which it promises to pay a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it matures, or comes due.”

The stakeholders were also educated about different types of bonds. A corporate bond, they were informed is a bond issued by a corporation to raise money to fund projects or for business expansion. It usually applies to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date.

A government bond on the other hand, is a debt instrument that obligates the government to pay to the investor the original principal amount plus interest at a specified maturity date. Corporate bonds generally have a higher risk of default when compared to government bonds, but they also attract a higher yield than the government bonds.

The need to look for other sources of raising funds was informed by the fact that the State’s allocation from the Federation Account has since the last one year dwindled by over 50 percent. Specifically, from N10billion to N4billion, a direct consequence of militancy since the States derivation revenue is calculated on the basis of oil production. Also, prior to the upsurge in the activities of militants, Shell Petroleum Development Company had a production rate of 400,000 barrels per day. This fell below 40,000 per day at the height of militancy.

When the bonds are finally issued, Bayelsa will be joining other states in the country in employing the option. Some state governments in Nigeria have been going to the Nigerian capital market to raise funds through the sale of bonds. In August last year, the Lagos State government announced plans to float an N275bn bond through the Central Bank of Nigeria (CBN) to pursue its infrastructural development. This year, the state has launched a N50bn bond, which was so successful that it was over-subscribed to the tune of N8.9bn.

Bonds are not new to State governments in Nigeria. In 1978, the then Bendel State government issued an N20million  bond on behalf of the Bendel State Development and Planning Authority to finance housing estates and shopping centres. That 10-year, 7% coupon rate bond was fully subscribed.
In 1985, Ogun State followed by floating an N15m 12% coupon rate government water project bond, which was under-subscribed by nearly a quarter when it debuted. In 1987, the Oyo State government floated the N30m 16.5% Adamasingba Shopping Centre and sports complexes bonds, which was very successful. In the same year, Lagos State’s N30m 17.5% Lekki Peninsula Residential and Commercial Construction Bond was also a big hit. Imo State is currently in the process of issuing N18.5 billion worth of 7-year bonds with a 15.5 perc ent coupon to finance water and critical road projects as well as the construction of a new conference centre and financing government’s equity investment in Imo Wonder Lake.

A realization of this fact may have swayed the stakeholders in throwing their weight behind the bond option. According to Senator John Brambaifa, “issuance of bonds will be a very good idea. All over the world, bonds are used for development; it however has to be managed effectively”.

Also Professor Kimse Okoko stated that “people should be educated on the advantages of bonds. It is usually targeted at special projects, as such government can be held accountable.”

Continuing, Prof. Okoko said, “Since the Bayelsa state government is willing to allow the World Bank to look into its books, it means that it is a government that is willing to be held accountable”. He therefore urged the Government to go ahead with the Bond option.
On his part, King Alfred Diete-Spiff commended the Government ‘for completing past administration’s projects.

ensures that government funds are not wasted”. He also urged the government to get Local governments to start functioning because they are closest to the grassroots.

At the end of the wide-ranging discussions, an 18 man stakeholders committee headed by Chief Anderson Eseimokumo was set up to work closely with the Bayelsa State government in implementing and monitoring the bond to be issued. Other members of the Committee include HRM King Joshua Igbagara, Prof. S.D. Sikoki, Prof. N. Brambaifa, Chief. A.R.S. Dienagha, Senator E.W.T. Diffa, Chief T.K. Okorotie, HRM, Malla Sasime, Godwin Okosu, Barrister C.J. Ayabowei, Dr. Amba Ambaiowei, Major. D. Sele (RTD), Hon. Graham Ipigansi, Mrs. Helen Opigo, President NUBBS, IYC Central Zone Chairman and President, National Council for Women.

In an opening remark, Governor Sylva highlighted the state’s achievements so far, in the areas of infrastructure and socio-economic development. The areas, in which the state has made significant progress according to the Governor, include, Agriculture and food supply, infrastructure – roads, bridges, power supply, e-governance, public financial management, peace and security, especially amnesty for militants.

The Governor further stated at the inception of the administration, it faced a lot of challenges in practically all fronts, “rather than board the popular boat of new Administration, new projects, we took a deliberate decision to take on several projects began by my predecessor. -To have abandoned these projects just for the sake of politics would have made us an infamous part of abandoned projects”

CHARLES IGBINIDU


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