Mr. Abraham Nwankwo
Director-General of the Debt Management Office, DMO, Mr. Abraham Nwankwo, yesterday expressed optimism that the recent restructuring of the short-term bank loans owed by 11 state governments into long-term Federal Government of Nigeria, FGN Bonds would cut their monthly debt service burden by a minimum of 55 per cent and maximum of 97 per cent.
This was as he assured that the renegotiated facilities would equally result in interest rate savings of between three and nine per cent per annum for the affected states and help regain fiscal balance.
Nwankwo stated this in Abuja while speaking to journalists in shortly after a meeting with a Kenyan delegation, comprising officials from the Central Bank of Kenya and the Treasury/Debt Management Department, which was on a study tour to unravel the success story of the Nigerian domestic bond market.
Nwankwo, who said the restructuring had been effected through the reopening of the FGN Bonds issued on July 18, 2014 and maturing on July 18, 2034, asserted that the pricing was based on the yield to date of the bond at a 30-day average, resulting in a transaction yield of 14.83 per cent.
He added that more states were presently in the process of finalising their documentation and reconciliation of balances with banks so that their debts could also be restructured in the second phase of the debt restructuring programme in the next couple of weeks.
According to him, the programme is open to any state which has an unsustainable debt burden from commercial bank loans.
Besides the benefits of the initiative to the states, he said banks’ balance sheets would also improve, as weak sub national loan assets are replaced with high quality sovereign assets.
He noted that the FGN Bonds enjoy enhanced liquidity as they are traded in the secondary market, affording the banks improved space to lend to other sectors of the economy as they are free to convert their FGN Bond holdings into cash in the secondary market.
He said the commercial loan-to-FGN Bond plan was one of the salutary options for short-term fiscal stabilisation, which was put forward by the DMO to reduce the debt-service outflow of states and free resources for them to meet other obligations, particularly clearance of arrears of salaries and pensions.
It would be recalled that the 36 states of the federation had approached President Muhammadu Buhari in June to ask for a bailout that would enable them pay salary arrears to their employees and meet other pressing financial obligations.
The President responded by approving the disbursement of $1.6 billion paid into the Federation Account by the Nigerian Liquefied Natural Gas (NLNG) Company to the three tiers of government; a Central Bank of Nigeria (CBN) N250 billion to N300 billion Special Intervention Fund meant solely for payment of the backlog of staff salaries; and the restructuring of their commercial loans with the banks through either bond issuance or into long tenured loans of 20 years.
Twenty-two states of the federation capitalized on the opportunity by applying to the DMO for their debts to be restructured into FGN Bonds. Out of the 22 states, 11 have been screened by the CBN and DMO, and FGN Bonds issued in respect of the loans of the 11 states to 14 banks.
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