Dwindling economy forces state governments to restructure debts

The sharp drop in global oil price is already taking its toll on the Nigerian economy, with several state governments being forced to commence planning on how to restructure their billions of naira worth of debts.

Data from the Debt Management Office (DMO) has showed that several Nigerian states borrowed in the domestic bond market and from banks to fund infrastructure projects when oil prices were much higher in mid-2014. But as crude prices dropped, many states have become unable to pay bills or salaries.

Even at that, the debt office has indicated its plan to sell N305billon and N395billionn ($1.08bn-$1.40bn) worth of bonds with maturities ranging from five to 20 years in the third quarter of this year.

For instance, Niger state is planning to seek bondholders’ approval on July 28 to restructure its 21 billion naira ($74million) worth of debt, with an intention to extend its five-year debt due in 2018 to 2023 and an to increase its coupon from 14 percent to 16 percent, the state adviser said on Thursday, as it seeks ways to ease strains caused by a plunge in crucial oil revenues.

“The bond will be restructured by extending the maturity date of the bond by five years to mature in 2023, with payment of the principal amount still being a semi-annual amortized payment,” United Capital said in a notice to bondholders.

Nigeria’s 36 state governments borrowed money this month from the federal government to augment their monthly income and cover salary payments after they deferred loan deductions for March.

They also received financial help from the central bank and Debt Management Office last year to clear a backlog of unpaid salaries and other expenses.

Niger state issued its bond in 2014 to fund infrastructure projects, including roads and the construction of 500 housing units, it said when it was marketing the bond.

In April the federal government said nearly two-thirds of states were struggling to pay salaries despite receiving a bailout.

Meanwhile, the DMO said on Wednesday it would auction between N105bn and N135bn worth of bonds maturing in 2021, 2026 and 2036 in July, while same bonds valued at between N95bn and N125bn would be sold in August; and N105bn and N135bn worth of the paper would be sold in September.

In its latest debt issuance calendar, the debt office said the 2021 paper was a new issue, while the 2026 and 2036 maturing paper re-opened previously issued debt, Reuters reported.

The Federal Government issues sovereign bonds monthly to support the local bond market to create a benchmark for corporate issuance and fund its budget deficit.