States governments clamouring to sell bonds before next year’s election are seeing their plans threatened as the Securities and Exchange Commission tighten the requirements for issuing debt, Bloomberg has reported.
Federal officials will prove less willing to approve sales as the February 2015 vote approaches, the Director-General, NSE, Ms. Arunma Oteh, has said in an interview.
They may take a more sceptical look at each state’s debt levels and allocations from the Federal Government, said Samir Gadio, a London-based emerging-markets strategist at Standard Bank Group Limited.
“As you come close to an election, we become tougher on the requirements for states to come to market,” Oteh said in a January 15 interview in Abuja. “I don’t know how many of them will cross the hurdle this year.”
States are planning to pay for upgrades in infrastructure such as roads, while also seeking to boost spending to end power cuts and sustain growth, forecast to be 6.7 per cent this year, according to the World Bank.
Next year’s federal and state elections may upset their fundraising objectives as President Goodluck Jonathan faces divisions in his ruling Peoples Democratic Party.
Naira sovereign debt returned 0.2 per cent this year, compared with a 2.3 per cent loss in South African rand bonds and a 0.7 per cent drop for local-currency emerging-market debt, according to data compiled by Bloomberg.
The extra yield investors demand to hold Nigerian dollar debt over Treasuries jumped 37 basis points this year to 330 as of January 28, compared with a 33-basis point increase in average emerging-market premiums, according to JPMorgan Chase & Co. indexes.
Most of the 36 states in Nigeria are targeting debt sales this year, the Director-General, Debt Management Office, Abraham Nwankwo, has said in an interview in Abuja.
The DMO manages the country’s bond issuance.
Six states, including Lagos and Osun, sold N126bn ($773m) in bonds or Shariah-compliant debt last year.
Sixteen states have outstanding bonds, according to a Lagos-based ratings company, Agusto & Co.
States issued N157bn in 2012, according to the securities regulator.
“There’s a lot of corruption that goes on before the election period,” an analyst at the FSDH Merchant Bank Limited, Mr. Babajide Solanke, said on the telephone on January 27.
Regulators, according to him, may ask states “why can’t they wait so that we can have more clarity about how those funds are dispersed” after the election?
The PDP is facing its biggest challenge since the end of military rule in 1999 after a series of defections to the opposition party.
While the government said it planned to stick to its budget targets, the Central Bank of Nigeria Governor, Mr. Lamido Sanusi, had warned of the threat of rising spending. Expenditures climbed 17 per cent before the 2011 presidential election.
States get most of their money from the Federal Government, which earns 80 per cent of its revenue from oil production.
Theft and pipeline vandalism in the key crude-producing Niger Delta cut output to less than two million barrels a day in 2013 from the government’s estimate of 2.5 million barrels.
The Excess Crude Account dwindled to $2.28bn by December 31 from $8.65bn at the end of 2012, according to Finance ministry data.
A spokeswoman for Rivers State Governor Rotimi Amaechi, the current chairman of the Nigerian Governors’ Forum, Ibim Semenitari, did not answer calls to her mobile phone or respond to e-mailed requests for comment.
Calls to the Abuja-based forum’s office did not connect and e-mails were not answered.
Nigeria’s foreign-currency reserves have dropped 13 per cent from last year’s peak of $48.85bn in May, hindering the central bank’s ability to defend the naira, which has dropped 1.6 per cent this year against the dollar, adding to last year’s 2.6 per cent slide.
The currency weakened 0.3 per cent to N162.89 per dollar by 6:31pm in Lagos.
Inflation accelerated for a second straight month, to eight per cent in December. The CBN is aiming to keep the rate within a range of six per cent to nine per cent this year.
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