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Imo and the N18.5bn bond

By Noble Nwabueze

IN its resolve to open up the rural areas of the state and quicken the pace of its industrial development, the Imo State Government under the leadership of Chief Ikedi Ohakim, is accessing N18.5 billion bond from the nation’s capital market as the first phase of the N40 billion medium term note programme. The seven-year fixed rate bond opened on June 30, 2009.

The N40 billion bond would provide the state government with access to the capital market over a period of two years, as the need arises, to raise debt to finance development projects in the state. This will enable the state achieve the 14 point development agenda tagged the “New Face of Imo State,” aimed at tackling challenges such as infrastructure decay, unemployment and poor  economic performance. This is indeed a laudable programme that should be encouraged  by  all and sundry.

The State Commissioner for Finance, Mr. George Irechukwu, recently explained how the money realised from the bond would be used.

According to him, the net proceeds from the issuance of the N18.5 billion Series One bond will be used as part financing for the Imo Wonder Lake Resort and Conference Centre, Oguta; a tourism and edutainment investment facility with a total cost of N60.27 billion; phase one of the sustainable rehabilitation of 37 semi-urban water supply schemes with a total cost of N1.3 billion and the construction and rehabilitation of 16 state roads with a total cost of N10.24 billion.

The water scheme when completed is expected to provide access to safe drinking water to more than five million people in the state. Most of the 811 water projects of the state are solar based.

The Imo Wonder Lake Resort and Conference Centre holds a lot of attraction because the state has the potential to become one of the nation’s major tourist destinations.

The project is being handled by the Legacy Group, the state’s main partner. The Group is regarded as Africa’s leading hospitality firm and lifestyle brand with expertise in hospitality, tourism and property development. Presently, Imo plays host to both local and foreign visitors. No doubt, the tempo would increase with the completion of the resort.

Expectedly, in the tourism sector, this venture is capable of creating massive employment and increase the state’s revenue base. As projected, the wonder Lake Resort is a major response to the diversification of the state’s economy with its potentials of creating 20,000 jobs and $200 million yearly in revenue.

The proceeds from the bond would also enable the state develop its road infrastructure. Currently, the existing state road network is being rehabilitated while 33 new roads are under construction.

The rehabilitation and construction of the road network would facilitate a link from the rural areas to the urban centres in order to improve the flow of traffic and goods throughout the state.

Part of the planned new roads is the Imo Free Way or Boulevard that would be 150 kilometres in length. The road, which will pass through 500 communities, 19 councils and  39 major markets in the state, is the first of its kind  in the country.

The stone-based dual carriage way would have 13 electronically manned toll  gates.  When completed the road would enable commuters get to Owerri, the state capital, in 30 minutes from anywhere in the state.

Some of the key features of the bond is  that it would mature in 2016, on a seven year tenure. It is exempted from tax and has a fixed coupon of 15.5 per cent yearly, which is attractive when compared to the seven-year Federal Government of Nigeria bond.

Another attractive feature of the bond is the amortizing repayment of principal and interest to the maturing date. Interestingly, the coupon is payable twice a year in arrears, 30 June and 31, December.

The minimum subscription of the bond is N10 million and multiples of N1 million thereafter. The bond and the state have A+ and BB+ ratings respectively from Agusto & Co, Nigeria’s leading rating agency.

Already, necessary approvals have been obtained for the listing of the bond on the Nigerian Stock Exchange (NSE).

Investors in the bond would reap a lot of benefits. For instance, the bond provides a fixed income for the investor, which is, payable twice a year. Other benefits to the investor include the following; the bond is exempted from tax, it is secured by an  irrevocable standing payment order on the state statutory allocation, it is listed on the Nigerian Stock Exchange and it has an investment grade rating of A+.

The bond also imposes enormous   financial discipline on the state. It is a transparent method of financing the state projects.  The rating and regular market disclosures required from the state demonstrate the state’s willingness and readiness to comply with the capital market rules.

The money would be used only for the projects it is meant for and would be strictly monitored.

The benefit of the bond to the state is that it offers the state a cheaper source of funds than the money market. It provides stable long-term funds that are not available in the money market.

With it, the state can execute projects that cannot otherwise be funded from monthly revenue receipts – federal allocation and internally generated revenue.

Other states in the federation have been accessing funds from the capital market to provide the needed infrastructure. It is not a bad idea if the state government utilizes the service offered by the capital market to develop the state.  It is a commendable idea that should be pursued with seriousness and vigour. An industrialised Imo would be to the benefit of all its citizens. It will help the state tap its abundant natural resources.

These include large oil and gas reserves, which have not been fully exploited. Currently, there are 163 oil wells in 12 locations across the state with more being drilled daily.

Opportunities also exist for oil and gas exploration and production. Imo State has a rich cultural heritage and is an attractive investment destination not only for agriculture, crude oil and manufacturing concerns but also telecom-munications, electricity generation and distribution.

There are over 11,000 industrial and business establishments serving the major industries in the state. Other natural resources of the state include lead, zinc, white clay, fine sand, limestone, gypsum and salt.

Mr. Nwabueze, a public affairs analyst, writes from Lagos.


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