The capital market has raised more than N10 trillion for private and public sector institutions in recent period. Public sector’s issuances are largely dominated by the Federal Government, with Lagos State the most active subnational leveraging the market to drive growth.The return of Gombe State to the capital market holds great promises for inclusive economic growth and wider subnational participation in the Nigerian market. Deputy Group Business Editor, Taofik Salako, reports that subnational issuances could be the much-needed fillip for cross-country infrastructural development and opportunities.
The Nigerian capital market has played increasingly important roles in financing the economy in recent years. With the volatility in the global economy and higher risk-aversion by international lenders, Nigeria has found support in its virile capital market to mitigate the adverse effect of the apathy in the global financial market.
While turnover has reached historic levels and the underlying demand placed Nigeria’s return atop global return, domestic investors accounted for more than three-quarters of activities at the capital market.
Some two-quarters of last year’s national budget were sourced from the domestic capital market. While the President Bola Tinubu’s administration has signalled the willingness to reduce borrowings, it has also indicated that the success of its Renewed Hope Agenda’s economic blueprint rests majorly on the capital market.
The capital market is expected to provide some one-third of the government’s N28.78 trillion 2024 budget through domestic debt issuances, privatisation, public private partnerships and assets monetisation, among others.
The N28.78 trillion 2024 budget included a capital expenditure of N9.99 trillion, the highest and first time in recent years when capital expenditure is above recurrent expenditure. In 2024, the government plans to reduce domestic borrowings by about 40 per cent while budget deficit to Gross Domestic Products (GDP) is expected to reduce significantly from 6.1 per cent in 2023 to 3.9 per cent in 2024.
The Federal Government plans to leverage the market efficiency and reengineer public finance through non-debt issuance capital market activities. For instance, the proposed sales of its 40 per cent holdings in electricity distribution companies (Discos) and partial or full privatisation of other assets including the Nigerian National Petroleum Company (NNPC) Limited, Eleme Petrochemicals Company Limited, Nigeria Re-Insurance, Nicon Insurance, and Nigeria Machine Tools, among others, are expected to simultaneously reduce the government overhead and increase revenue and usability of the assets.
State govts and capital market
But the other two tiers of government – state and local governments – have largely been inactive in the capital market. While the laws copiously provide for the use of capital market by subnational entities, only few states have accessed the market. Local government and municipal issuances are non-existent.
Lagos State has been the active subnational issuer. Last year, the Lagos State Government (LASG) launched its N1 trillion Debt and Hybrid Instruments Issuance (DAHI) Programme. Its first issuance under the DAHI programme, a N100 billion bond, was oversubscribed. The net proceeds from the bond issuance were earmarked for priority physical and social infrastructure projects across the state. Riding on the huge investors’appetite for the ordinary bond, the LASG immediately launched Nigeria’s second subnational alternative bond, Sukuk. The Lagos State Infrastructure Sukuk SPV Plc, the special purpose vehicle of the LASG, successfully floated its N19.815 billion 14.675 per cent Series II Fixed Return Forward Ijarah Sukuk.
Notably, the LASG Sukuk, the second by a registered Nigerian sub-national, overshot its target within three days of opening. The net proceeds of the Sukuk issuance were earmarked for the financing of the construction and rehabilitation of the Awoyaya section of the Eti-Osa-Lekki-Epe Expressway.
Edo State Government followed LASG with the launch of a N6 billion bond, under the state’s N25 billion bond issuance progrmme. It had raised N15.3 billion in Series 1 capital raise under the new programme. The state had in December 2020 also raised N24.5 billion under a previous N25 billion debt issuance programme. The net proceeds of the N6 billion bond were earmarked for infrastructural developments across the transportation and services sectors. The debt capital was also meant to address some portion of the state’s budget deficit for last year and support key infrastructural investments.
The northern star comes to the market
Gombe State last week made an ecstatic return to the capital market with a three-in-one programme aimed at significantly reengaging the private sector for the development of the state. The state unveiled plans to raise about N30 billion from the capital market to invest in major infrastructural projects aimed at fostering sustainable development. The state has also launched a strategic private-public partnership drive to encourage private investments in key sectors of the state economy.
Gombe State Governor, Alhaji Inuwa Yahaya, who outlined the state’s economic development blueprint at interactive sessions with capital market stakeholders and strategic investors at the Nigerian Exchange (NGX) in Lagos, said the state could raise funds through ordinary and alternative bond issuances. While the initial target is a N30 billion ordinary bond, the state could adopt a mixed issuance of ordinary bond and Sukuk, to meet the diverse demand of the investing public.
Gombe plans to float green bonds to fund many sustainable development projects. The northeastern state has budgeted about N120.7 billion for capital projects in the year, targeting infrastructural projects across key sectors of roads, healthcare and education among others.The admixture of green bond and Sukuk fits the geographical and geopolitical leanings of the state.
Under Nigeria’s green bond regulatory framework, a green bond is defined as any type of debt instrument, the proceeds of which would be exclusively applied to finance or re-finance in part or in full new and or existing projects that have positive environmental impact.
The rules indicated that green bonds would be used exclusively to finance renewable and sustainable energy, clean transportation, sustainable water management, climate change adaptation, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation and any other categories as may be approved by Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC), from time to time.
Inuwa explained that the green bond is aimed at raising funds for eco-friendly and environmentally friendly investments, especially in assets that will contribute to restoration and upliftment of human life so that the state can reduce the impact of climate change and global warming.
He said the state was building on its hugely successful private investment campaign, known as GoInvest 1.0, launched in 2022, with the roll out of GoInvest 2.0, which holds several investment opportunities for investors.
“With the support we saw and the acceptance by the Nigerian capital market stakeholders, we are going to hit our target,” Yahaya said.
He said the capital market is the ideal place for the governments and private sector to pool funds for development, assuring that Gombe State will continue to engage the market as strategic partner in its development programme.
He outlined that the state has several competitive advantages for investors, including being one of Nigeria’s most diverse and peaceful states, home to several multinationals, access to international markets, abundant natural resources, central location within the northeastern region, low-risk investment environment, skilled, young and available workforce, clear and large market potential for different goods and services and as a veritable emerging market.
He pointed out that Gombe has been ranked as the best state in Nigeria in the Ease of Doing Business (EoDB) for two consecutive years. It was ranked fifth out of 36 states under the fiscal transparency and integrity index. The index tracked accessibility, open budget, public procurement, human resources, anti-corruption and citizens’ engagement.
According to him, Gombe presents several investment opportunities, including tomatoes value chain and livestock.
He pointed out that the state has the largest grazing reserve in Nigeria with 146,000 hectares of land, comprising six veterinary clinics, milk collection centre and modern abattoir and 16 boreholes.
He said the government’s commitment to maintaining peace and fostering a business friendly environment has been a key factor in ensuring the state’s security and attractiveness to investors.
Experts agreed that the recourse to the capital market by Gombe holds several opportunities for the state and the sub-region.
Chairman, Nigerian Exchange Group (NGX Group) Plc, Dr. Umaru Kwairanga said underscored the importance of appropriate financing to unlock Nigeria’s vast potential across the states.
According to him, Nigeria is one of the best investment destinations globally as it is blessed with abundant human and natural resources.
“We have vast lands for agriculture and food production, almost every kind of mineral resources that you can think of, and a large hardworking populace,” Kwairanga said.
He commended the visionary leadership of Yahaya, noting that with a leader like him and an investor-friendly President Tinubu, the dream of inclusive development will become more realistic.
He said the next growth engine of the world is Africa and this is going to be led by Nigeria.
Managing Director, Backbone Connectivity Network Nigeria, Ibrahim Dikko, said the company was investing in Gombe because of the huge potential of the state.
“We have just signed an agreement with the Gombe State Government to position the state as a technology hub for Northeast Nigeria,” Dikko said.
Group Managing Director, GTI Capital Group, Mr. Abubakar Lawal, who was at the closing gong ceremony during which Yahaya emphasised the state’s readiness for private investors and beat the gong to signal close of the stock market for the day, said Gombe was an attractive destination for investors.
According to him, the state’s top rankings by many reputable institutions, including United Nation Development Programme (UNDP), Ease of Doing Business and Fiscal Transparency and Integrity Index and Council on Foreign Relations’ Nigeria Security Tracker among others are indicative of the impressive enabling environment.
Lawal assured that the capital market would support Gombe in realising its dreams of a vibrant and prosperous economy.
Experts said Yahaya, who doubles as the Chairman of Northern Governors Forum, could be the pathfinder for the region, which growth rate belies its huge potential. Gombe shares boundaries with Yobe, Borno, Adamawa, Taraba and Bauchi states, all with vast climate-related potential, including agro-energy projects.
Yahaya, whose state is credited as the most peaceful state in the country, has been commended for his leadership style and is seen as a leading influencer within the region.
Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said accessing the capital market by subnationals is a welcome idea.
“It could be helpful, especially for infrastructure projects. Not many states have the cash flow to fund infrastructure projects and complete in record time,” Yusuf said.
He, however, noted the need to ensure that the subnationals have the capacity to repay the debts and such repayment arrangement securely settled within the processes of the state governance.
The uniqueness of green bonds and Sukuk
The adoption of green bond and Sukuk by Gombe provides additional layer of scrutiny and conformity to the utilisation programme. Sukuk, with its asset-backed nature, is becoming a favourite of a large segment of the investing public. All Sukuk issuances so far have recorded oversubscription.
The regulatory framework for green bonds also included additional commitments to ensure the funds are secured and deployed to outlined projects. The green bond framework highlighted some special conditions that any issuer of green bond must fulfill in addition to the general registration requirements for debt issuances as stated in the Rules and Regulations of the Commission for States, Local Governments, Corporate and Supranational agencies.
According to the rules, an issuer of a green bond shall also file a feasibility study and report, stating clearly the measurable benefits of the proposed green project or assets such as green house gas reduction, reduction of water use and reduction of harmful emissions.
The issuer must also file a prospectus which shall include project categories, project selection criteria, decision-making procedures, environmental benefits, use and management of the proceeds as well as a letter from the issuer committing to invest proceeds of the bond in green projects or assets.
The issuer must also provide an independent assessment or certification issued by a professional certification authority or person approved or recognized by the Commission in addition to any other documents that may be required by the Commission.
“The net proceeds shall only be utilised for the purpose stated in the approved offer documents and shall be tracked as stated in the approved internal policy of the Issuer which shall be disclosed in the offer documents,” the rules stated.
The issuer is also expected to publish the utilisation of proceeds in at least two national dailies on an annual basis which shall contain the details of the key factors capturing the environmental impact of such investments and the same shall be disclosed in its annual report and website.
With the Gombe State Investment Promotion Agency, which was established on December 22, 2023, expected to begin full operations this month, the state appears to be living up to its commitments to provide investors’ friendly environment. The agency will streamline processes for investor facilitation, including land acquisition, permits, licenses, and access to essential services with a view to supporting investors’ initiatives efficiently.
