11 states to pay 14.83% interest in 20yrs

In from Ali Smart …
Eleven states are to pay 14.83% interest to service their debts, Ripples has learnt.
Director General of the Debt Management Office (DMO) Dr. Abraham Nwankwo stated on Monday in Abuja, that 14 banks were involved in the first phase of the states’ debt restructuring exercise involving 11 states.
It would be recalled that some states had decided to trade in their bonds to pay up their debts in some commercial banks.
Nwankwo noted that “the debt restructuring operation and the total loans to the eleven states which were restructured amounted to N322.788 billion.
The restructuring, he said: “was effected using a re-opening of the FGN-Bond issued on July 18, 2014 and maturing on July 18, 2034. 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.”
The DMO boss further revealed that the impact of the debt management operations will include monthly debt service burden which will drop by a minimum of 55 per cent and a maximum of 97 per cent, among the eleven; and interest rate savings for the eleven states ranging from 3 per cent to 9 per cent per annum.
Expatiating, Nwankwo recalled that the debt restructuring exercise was open to all the 36 states of the federation and the Federal Capital Territory (FCT) but that the second phase of the commercial debt restructuring exercise will commence when the remaining eleven states have completed the reconciliation of their loans with their respective banks and the loans jointly authenticated by the states and the banks before submission to the DMO.
According to him, “more states are concluding their documentation and reconciliation of balances with banks and their debts will be restructured in Phase II in the next couple of weeks.”
The restructuring Nwankwo explained “is good not only for the states but also for the banking system because banks’ balance sheets will improve as weak subnational loan which threatened banks’ assets and balance sheets will be replaced with high quality Sovereign assets; the FGN-Bonds enjoy enhanced liquidity as they are traded in the strong secondary market; and, banks would have 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 whenever they desire.”

Read also: 27 states to get CBN N300b bailout

The first eleven states that got their debts to commercial banks restructured are Osun N88.6 billion; Delta N69.8 billion; Ogun N55.4 billion; Imo N37.1 billion; Ekiti N18.8 billion; Kwara N15.6 billion; Edo N11.9 billion; Benue N10.9 billion; Oyo N9.1 billion Bauchi N6.5 billion and Kogi N0.81 billion amounting to N322.78 billion.
As part of effort by President Muhammadu Buhari to strengthen the economy, the government has attached high priority to addressing the fiscal imbalance faced by most states of the federation. The immediate cause of the fiscal imbalance was the structural drop in the international price of crude oil by more than 43% and the resultant drop in the revenue allocation from the distributable pool for all governments in the federation by about 40%.
The situation constrained the ability of many states to meet their financial obligations, including payment of salaries.
Nwankwo said the Debt Management Office put forward a proposal for restructuring the short-term bank loans of states into long-term Federal Government of Nigeria (FGN) Bonds to reduce the debt-service outflow of states and free resources for meeting other obligations, particularly, clearance of arrears of salaries and pensions.
As at August 19, 2015, 22 states had submitted requests for the bank loan-to-FGN-Bond restructuring.
Of the 22 states, the first 11 had completed and submitted all necessary documentations, including the submission of jointly authenticated balances with banks as at August 14, 2015, and subsequently had their bank loans restructured for 20-years effective August 17, 2015.

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