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The Lagos State government has announced that its second fixed rate bond was subscribed in excess of 249 percent.

The announcement was made by the
state’s deputy governor, Adebisi Sarah Sosan, who represented Babatunde
Fashola, the state governor, at the completion board meeting of the
N57.5 billion Lagos State Fixed Rate Bond (Series 2) 2010/2017, issued
under the N275 billion State Debt Issuance Programme.

The deputy governor said the second
series of the N275 billion bond has recorded the highest level of
participation in any bond issued in the capital market.

The Lagos State first tranche bond of N50 billion, issued in 2008, was oversubscribed to the tune of N8.9 billion.

Mrs. Sosan, in a statement on Tuesday,
said, “There was much anticipation in our financial markets when the
announcement was made about the first tranche on December 24, 2008. The
public offer received a tremendous response from investors, both
individuals and institutional, and recorded an unprecedented 117.93
percent level of subscription. Applications in respect of the N50
billion tranche 1 offer amounted to N58,966,760,000.

“The result of the just concluded bond
offering is a clear indication that the investing public is keen to
partner with the government in the ongoing transformation,” she stated.

The tranche 2 bond issuance of the
required N50 billion was sold by Book Build method, solely opened to
institutional investors only.

“On April 7, 2010, when the Order Book
opened, our Book Runners, led by Chapel Hill Denham Management Limited,
were mandated to raise N50 billion. At the close of the Order Book on
April 13, 2010, the Book Runners had received bids in excess of 249
percent,” she explained.

State of firsts

Meanwhile, Mr.
Fashola, in his speech, said the completion of the board meeting scored
many “firsts” for the state: the first to establish a Bond Issuance
Programme, the first to undertake successive bond issuances during the
tenure of the same administration, the first to issue a bond without an
Irrevocable Standing Payment Orders, the first to issue a bond without
any underwriting arrangements, and the first to undertake an offering
by way of a book build.

“This
administration will continue to observe the strictest standards of
fiscal responsibility and take extremely seriously our responsibility
as managers of the state’s resources; regardless of whether they are
financial, human, mineral, agricultural or fall into other categories”,
he stated.

As explained, the
proceeds of the bond will be used to fund the upgrading of the
Lagos-Badagry Express Way into a 10-lane highway.

Also, the state
water transportation will be expanded, as construction work is already
going on at ferry terminals at Ikorodu, Badore, and Osborne.

“Our other plans to
develop Lagos include funding of Light Rail Transit Scheme. There are
other capital intensive projects that have been earmarked for execution
by this administration to develop Lagos into a global city and cater
for the welfare of the people,” he declared.

The governor
expressed appreciation to all the Issuing Houses, financial
institutions, and state lawmakers for enacting the enabling law of
Capital Raising Programme, without which the state would not have gone
this far in the provision of essential services.

The board meeting
witnessed the presentation of Debt Issuance Programme Documents to all
the representatives of the state government and the eventual signing of
the documents, after the verification of issuance questionnaire by the
representative of the state government.

Is the bond mispriced?

Reacting to this
development, analysts at Renaissance Capital, an investment advisory
firm, said, “In our view, the pricing of Lagos State’s Series II Bond
is less attractive than other recent state bonds that were placed in
the 14-15.5 percent range. And the 500 bpts yield differential with the
interpolated seven-year FGN tenure is somewhat irrelevant, as the
sovereign yield curve is fundamentally depressed.”

The experts said while the Lagos State’s bond will probably not
generate any sizeable secondary market activity, “we think it is
possible the instrument could ultimately trade at a discount should the
FGN curve correct as macroeconomic, and financial conditions improve in
the future.”