Minister of Finance, Ngozi Okonjo Iweala
By Goddy Egene
The high interest rate regime is delaying more states from accessing the bond market for funds to finance infrastructural development, THISDAY checks have revealed.
While the Federal Government has been frequenting the bond market for funds, only three states-Delta, Ekiti and Ondo have accessed the market for funds recently.
Rivers State and Akwa Ibom State had last year indicated interest to float bonds and raise funds that would fast-track the infrastructural developments in their various states.
Rivers State had planned to access the market in the last quarter of 2011 under its N200 billion bond issuance programme, while Akwa Ibom was to be in market in the second quarter of this year. However, none of the states has accessed the market for bonds.
THISDAY gathered that the high interest rate is one of the reasons delaying the execution of the bond issuance programmes of the states.
Market sources said that some of the state governments considered the interest rates of between 14 and 17 per cent paid on sovereign and sub-sovereign bonds to be on the high side.
Ekiti State raised N20.3 billion at rate of 14.5 per cent, while Oando State raised N27 billion at the rate of 14 per cent.
The interest rates paid by the Federal Government’s on its bonds are even higher with some as high as 17 per cent.
“This high interest rates paid on sovereign and sub-sovereign debt instruments are quite on the high side considering the fact investment in the securities are relatively safer.
Negotiations on the interest rates have kept some state away from accessing the market now,” a source close to financial advisers to one of the states said.
While state government are being discouraged by the high interest rate, FG continues to auction bonds in the market.
For instance, FG would be raising N83.91 billion from the market next week.
The bond auction was earlier scheduled to hold today but has been postponed to next Wednesday June 27, 2012. The bonds to be sold include: N30 billion each, which will be for five years and seven years maturity while N23.9 billion due for maturity in 10 years.
The 7-year bond will be a new issue while the 5-year and 10-year are being re-opened.