FUNDING LAGOS STATE GOVERNMENT’SECONOMIC AGENDA THROUGH DEBT CAPITAL

MARKETS

Presented by

Mr. Akinyemi Ashade

Lagos State Commissioner for Finance

2017 Nigerian Debt Capital Markets Conference

September 28, 2017

I. INTRODUCTION

II. LAGOS STATE DEVELOPMENT PLAN

III. FINANCING THROUGH THE DEBT CAPITAL MARKET

IV. CONCLUSION

2

Contents

Introduction

N287 Billion IGR (2016)

$91bnGDP (2016)

A+Credit Rating

Agusto & Co and GCR

> 65%of Nigeria’s businesses

N1.1trnspend on

infrastructure in the last 8 years

2,000 manufacturing companies 200 financial institutions• >23m residents, thus most populous city in Africa

• Africa’s fastest growing market• 5th Largest economy in Africa• Contributes >30% of Nigeria’s GDP• Accounts for >90% of Nigeria's fx inflows

3

Lagos State is the commercial hub of Africa’s largest economy

4

Lagos State’s Development Plan is hinged on four pillars

Economic Growth:Wealth creation through employment for our people

Social Development & Security:Investing in people, health, education and security

Sustainable Environment:Creating a green, clean and safe city

Infrastructure Development:Long term investment in transportation, roads, power, housing and water

1 2

43

5

The Case for Infrastructure Development

Global Urban Population Densities (people/km2)

• Explosive increase in population at 5% p.a.; 123,000 people migrate to Lagos daily.• Current demand for trips in Lagos Metropolitan Area - by all modes (including walking) - is ~18 million

per day, with over 7 million public transport passenger trips per day.• The rapid increase in population and standard of living is forecasted to bring the daily demand for trips

to ~30 million per day by 2020 .• Traffic gridlock with > 240 vehicles per kilometer, compared to a national average of 11 vehicles per

kilometer.• 10,000 metric tones of waste generated daily.• Lagos State is by far the largest consumer of power in Nigeria, the Ikeja and Eko distribution zones

alone accounting for over 50% of the total electricity consumption in Nigeria.

Paris

London

Lagos

New York2,797

5,904

9,074

13,300

Source: WEF, LAMATA, Lagos State

6

Infrastructure Development…Journey so far

Schools

Road Infrastructure

Security

Rail Infrastructure

The current administration has continued to improve on the State’s physical and social infrastructure

…the journey ahead: Project pipeline

7

Works and Infrastructure ProjectsConstruction of roads, bridges and rail

Tourism, Arts & Culture ProjectsConstruction of Museums, Tourism Centres and Arts Theatres

Health ProjectsRemodeling/Construction of Hospitals, Maternal and Child Care Centers, Supply of Hospital Equipment

Waterfront Infrastructure Channelization of Ferry routes; Construction of Jetties and Shoreline protection

Education Projects Construction/ and rehabilitation of schools; and provision of desks, chairs and science equipment

Judiciary Projects Construction and rehabilitation of high courts

Environment Sector ProjectsCleaner Lagos Initiative

Sport Commission Projects Construction of Stadia and recreation centers

Youth & Social Development Sector ProjectsConstruction of Old People’s Homes

8

The Immediate Financing Need

Lagos State’s 2017 budget has N500billion (cUS$1.6 billion) as capitalspend.

Infrastructure needs analysis showsthat over $30 billion would berequired to achieve the 30 mostimpactful projects over the next fiveyears (an average of US$6 billion perannum).

9

Accessing the Debt Capital Markets: Key Milestones

2008Lagos State Registered 1st

Shelf Programme

2012▪ Registration of N167.5

bn Programme 2 (“P2”) ▪ Issuance of N80bn

P2S1 bonds▪ Completion of the

Lekki-Ikoyi Link Bridge

1987/88First Lagos State Bond Issuance▪ ‘N30bn and N60bn

Revenue Bond for the development of Lekki Peninsula

2013-14Issuance of Programme 2 Series 2▪ Nov. 2013 – Issuance

of N87.5bn P2S2 bonds▪ Acquisition of Assets &

Liabilities of the Lekki Concession Company

2009▪ Feb. 2009 – Issuance of

N50bn 1st series of bonds under Programme 1 (“P1”)

2002-07▪ Issuance of N15bn

bond (single issuance) ▪ First bond issuance by

Lagos in 14 years

2010-11Issuance of P1T2▪ April 2010 – issuance

of N57.5bn P1S2 bonds▪ Increase in IGR of over

86%

2015▪ Redemption of the

P1S1 Bonds▪ Over 300 major road

projects rehabilitated▪ 66 major road projects

at various stages of completion

2016▪ Registration of the

N500 Billion Debt Issuance Programme –Programme 3 (“P3”)

▪ Issuance of ₦47bn in the 1st series under P3.

2017

▪ ₦85.14bn issued in Dual Tranche - 7 and 10 year Bonds under P3S2

▪ Pioneer Sub-national in the issuance of a 10 year Bond.

… Significant growth over the last 16 years, through judicious use of the domestic capital markets

10

Summary of Recent Issuances…Instrument Fixed Rate, 7-year Bond (Series 1) Fixed Rate, 7-year Bond (Series 2)

Size N50,000,000,000 N57,500,000,000

Bond Rating A+ (Agusto & Co.); AA (GCR) A+ (Agusto & Co.); A+ (GCR)

Issue Price At Par; N1,000 per unit At Par; N1,000 per unit

Coupon 13% 10%

Tax Status Tax Exempt Tax Exempt

Distribution Offer for Subscription by way of a Book Build Offer for Subscription by way of a Book Build

Security ISPO and CDSA (≥15% of the State’s IGR remitted monthly) ISPO and CDSA (≥15% of the State’s IGR remitted monthly)

Instrument Fixed Rate, 7-year Bond (Series 1) Fixed Rate, 7-year Bond (Series 2)

Size N80,000,000,000 N87,500,000,000

Bond Rating AA- (Agusto & Co.); AA- (GCR) A + (Agusto & Co.); AA- (GCR)

Issue Price At Par; N1,000 per unit At Par; N1,000 per unit

Coupon 14.5% 13.5%

Tax Status Tax Exempt Tax Exempt

Distribution Offer for Subscription by way of a Book Build Offer for Subscription by way of a Book Build

Security ISPO and CDSA (≥15% of the State’s IGR remitted monthly) ISPO and CDSA (≥15% of the State’s IGR remitted monthly)

Instrument Fixed Rate, 7-year Bond (Series 1) Fixed Rate, 7-year Bond (Series 2, Tranche I) Fixed Rate, 10-year Bond (Series 1, Tranche II)

Size N47,000,000,000 N46,370,000,000 N38,770,000,000

Bond Rating Aa- (Agusto & Co.); AA- (GCR) Aa- (Agusto & Co.); AA- (GCR) Aa- (Agusto & Co.); AA- (GCR)

Issue Price At Par; N1,000 per unit At Par; N1,000 per unit At Par; N1,000 per unit

Coupon 16.5% 16.75% 17.25%

Tax Status Tax Exempt Tax Exempt Tax Exempt

Distribution Offer for Subscription by way of a Book Build

Offer for Subscription by way of a Book Build

Offer for Subscription by way of a Book Build

Security ISPO and CDSA ISPO and CDSA ISPO and CDSA

PR

OG

RA

MM

E 1

PR

OG

RA

MM

E 2

PR

OG

RA

MM

E 3

11

Strong Financial Fundamentals… support debt issuances

▪ IGR remains the main source of revenues at 67%, withFederal Transfers representing c28%.

▪ The main source of IGR is Personal Income Tax receipts(“PIT”) which represents about 57% of IGR.

▪ The improvement in living standards and the evolutionof a conducive environment - a consequence ofinfrastructure renewal - has prompted greater taxresponsibility amongst residents in the State.

Internally Generated Revenue Q3 - 2016

82.53%

4.92%

2.69%2.28%

1.84% 1.70%4.04%

TAXES

FINES AND FEES

LAND USE CHARGE

EARNINGS

OTHER CAPITAL RECEIPTS

MVAA WEIGHTING ANDADMINISTRATIVE FEESS

OTHERS

2834 41 62 83

130178 173 187 209

246275 268

287

183

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 H1 2017

Internally Generated Revenue N Billion (2003-2017)

Source: Lagos State Government Financial Statements

12

Debt Capacity

Source: DMO, Lagos State Government Financial Statements

Total Debt StockThe State’s credibility & good track has increased the appetite of both local and foreign investors

Debt Service / Revenue Significantly less than the benchmark…

Debt / Revenue Well within benchmark; room to raise further debt

Breakdown of Total Debt Stock, 2016 Debt / GDP

IGR as a % of RevenueIncreasing IGR growth on the back of robust tax collection, and in spite of unstable statutory allocations

Bank Borrowings16%

Bonds19%

Multilateral65%

20%

2.0% 2.5% 2.1% 1.8% 2.0% 2.7%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Be

nch

mar

k

20

11

20

12

20

13

20

14

20

15

20

16

61% 60% 61% 62% 63%70% 72%

0%

20%

40%

60%

80%

2010 2011 2012 2013 2014 2015 2016

105 126 146 216368

464184276

388 294

219128

-

200

400

600

800

2011 2012 2013 2014 2015 2016

External Debt Domestic Debt

250%

51%

113%104% 123%

186%

0%

50%

100%

150%

200%

250%

300%

Be

nch

mar

k

20

12

20

13

20

14

20

15

20

16

30%

17%

4%

13% 12%13%

0%

10%

20%

30%

40%

Be

nch

mar

k

20

12

20

13

20

14

20

15

20

16

Debt ratios within benchmark, sufficient headroom to raise additional debt

13

Case in point: Lagos State N500 Billion Debt Issuance Programme

• The successful issue of the first and second series under the new Programme is anindication of the continued investor confidence in Lagos State, despite the currenteconomic challenges faced by the nation.

• The most recent Series 2 issuance (completed in August 2017) was the first Dual Tenorissuance by a sub-national.

• This was also the first time the issuance of a 10 year instrument would be undertaken by anon-sovereign issuer, thus extending tenors in the domestic non-sovereign market.

• A total of N132 bn out of the N500 bn has been raised in less than 1 year.

• Significant participation by PFAs (52%) and Banks (37%)

• The proceeds of the bond will enable the state fund various physical and socialinfrastructure projects.

14

Conclusion

• To enhance the growth and development of Lagos State, the government is committed tothe execution of the Lagos State Development Plan with focus on vital sectors such asPower, Works, Road, Housing, Health, Youth Development and Education etc.

• In the face of the current needs of the State, the Government cannot fund all the criticalinfrastructure that the State’s economy needs to meet the challenges of the comingdecades; neither can this development be accelerated.

• Lagos State is a responsible issuer and the Debt Capital market provides a steady and solidsource of funding for the State.

• On a final note, Lagos State would not be confident of accessing the domestic debt capitalmarkets if a strong investor base did not exist and we must appreciate the support from theinvestors especially the PFAs and asset managers/trustee companies. The HonourabeMinister of Finance, DMO and SEC have also been very supportive of our initiatives and weare appreciative of the support.