Lagos – Mr Ezekiel Oluyori, Acting Chief Executive Officer, Investment One Stockbrokers International Ltd., on Wednesday called for innovative financing strategies to boost state government bonds on the Nigerian Stock Exchange (NSE).
Oluyori told the News Agency of Nigeria (NAN) in Lagos that one of such strategies was the expansion of bond issuance repayment to multilateral agencies for guarantee.
He said that guaranteeing bonds by agencies like the International Finance Corporation (IFC) would develop the bond market.
Oluyori against the backdrop of the statement by the Debt Management Office (DMO) that state governments issued bonds worth over N600 billion to fund infrastructure development in the past 10 years.
According to DMO, the amount was raised between 2005 and 2014.
A government bond is a bond issued by a national government, generally with a promise to pay periodic interests and repay the face value on the maturity date.
Government bonds are usually denominated in the country’s own currency.
Oluyori said that since agencies like IFC could offer guarantees to state government and corporate bonds on flexible terms, it should be explored to develop the bond market.
He explained that bond issuance repayment normally guaranteed from taxes and Federal Government allocation should be expanded to include guarantees from multilateral agencies.
Oluyori said that improved credit rating of the state from a reputable rating agency would provide some level of comfort to bond investors.
The stockbroker also said that developing strong Internally Generated Revenue (IGR) to provide guarantee for the proposed bond issuance would make it to be attractive.
According to him, this will assure investors of timely coupon and principal payments.
Oluyori added that states should grow their revenue base through IGR and taxes to make their bonds attractive to investors.
He urged state governments to embrace the bond market for developmental projects instead of relying on bank borrowing.
Highlighting the benefits of bond issuance, he said that “pricing of bonds is a reflection of the general market value which makes it fair’’.
Oluyori said that the monitoring mechanism introduced by the Securities and Exchange Commission (SEC) had ensured that funds realised were expended on the intended purpose.
“With bonds, state governments will source their financing directly from the capital market which ultimately allows banks to fund the real sector of the economy.
“Besides, the interest rate on repayment of bonds is often less than that of bank loans.
“Bond issuance can allow a state government to source both short and longer-term funding by varying the duration of the bond based on its financial need,’’ he said. (NAN)