Nigeria has restructured short-term commercial bank loans to its cash-strapped state governments into longer-term sovereign bonds as Africa's biggest economy seeks to reduce a growing backlog of domestic debt against a background of falling oil revenues. The Debt Management Office (DMO) has issued bonds in respect of debts owed by 11 states to address "fiscal imbalance", its director-general Abraham Nwankwo said. The bonds were issued to 14 commercial banks.
Nwankwo said 22 out of Nigeria's 36 states had applied for a restructuring, and the debt office had asked them to reconcile their loan figures with the various lenders. Commercial lenders were issued 2034 (20-year) bonds at a yield of 14.8 percent, analysts said. The bond has a tax equivalent yield of 21.2 percent, analysts at Renaissance Capital said. Most lenders granted the state loans at interest rates of 18 to 20 percent. There were no details on the total value of loans restructured so far, or when they were due. Bank loans typically mature within two years.
"DMO is now reviewing the additional submissions by states in the second phase of the program," Nwankwo told the National Economic Council, which is chaired by Nigeria's vice-president and attended by state governors. Nigerian states are in debt to the tune of 658 billion naira ($3.3 billion), one of the governors has said. Several of them borrowed in the domestic bond market and from banks to fund infrastructure projects. But as the price of crude oil, which represents 70 percent of the country's revenues, has plunged, states have been unable to pay their bills including salaries.
In July, pan-African lender Ecobank said it was working with the DMO on a restructuring plan for loans it made to various Nigerian states. It said it loaned $150 million to state governments, of which $45 million had been placed on a watch list as the finances of the states grew more precarious.
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