THE Lagos State government under Governor Babajide Sanwo-Olu has provided a N79 billion credit guarantee to a little known Voda Infrastructure Management Limited, a development company appointed by the state to undertake construction of its two projects,
The projects include Massey Children Hospital and Opebi Link Bridge.
The guarantee is a total of NGN79 billion term loans and bond issuance obtained by Voda for the respective projects from commercial banks and bondholders.
The payment obligations (including coupon, principal repayment and other charges) on the loans and bond issue are backed by irrevocable standing payment orders issued by the state as a first-line monthly deduction from its expenditure accounts domiciled with the banks and IGR accounts respectively.
Most stakeholders wonder is why Lagos State did not issue the bonds directly and use the proceeds to fund the projects. Voda Infrastructure Management Limited led by CEO Akindeji Akinniranye, was registered about four years ago in September 2020, according to the Corporate Affairs Commission (CAC) data.
The Lagos State Government’s gross debt (including contingent liabilities) increased to N2.7 trillion in March 2024, due to adverse exchange rate movement as a high portion of the state’s debt, above 53 percent is foreign currency (FCY) denominated.
Leverage metrics have as such deteriorated and net debt to total income weakened to 1.8x in 2023 (2022: 1.6x), free cash flow (FCF) coverage of gross debt declined to 23percent in 2023 from 36percent in 2022, and net interest coverage reduced to 4.8x in 2023 from 6.4x in 2022, due to higher finance charge from the elevated debt.
Lagos state has an ongoing plan to refinance the foreign currency loans with local debt,
“We do not expect this to materialise in the near term as it will have negative consequences on the interest cover and the debt maturity profile,” GCR Ratings said in a note.
GCR Ratings said it has affirmed the national scale long-term and short-term issuer ratings of AA-(NG) and A1+(NG) respectively accorded to Lagos State Government.
Also, the emerging market rating firm fully owned by Moody’s Investors Services affirmed the national scale long-term issue rating of AA-(NG) accorded to Lagos State Government’s programme 3 series II (tranches II & IV), series III, series IV and programme 4 series I fixed rate bond issuances.
At the same time, GCR has affirmed the national scale long-term issue rating of AA-(NG) assigned to Lagos State Infrastructure Sukuk SPV Plc’s series II forward-ijarah sukuk.
The outlooks on the issuer and issue ratings are stable, the rating note added. GCR explained that the ratings of Lagos State Government reflect the state’s sustained strong revenue generating capacity, continuous improvement in operating performance supported by its crucial position within the Nigerian economy and well-diversified internal economy.
However, the ratings are constrained by the state’s weaker leverage metrics and capital structure due to elevated debt position and high exposure to foreign currency risk. GCR stated that Lagos State’s profile is a key rating strength underpinned by its significant contribution to the nation’s economy.
The state is the economic and commercial centre of Nigeria. Despite the state’s small geographical size, it contributed about half of the country’s gross domestic product in 2023 versus 43 percent in 2022.
According to the rating note, Lagos continues to attract investments locally and internationally including large public infrastructure projects aimed at boosting the economy and enhancing the business environment.
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