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					    Debt Issuance Finance
     Domestic Standards


         Hakeem O. Sanusi
        Executive Chairman
Urban Development Bank of Nigeria Plc


     Presentation at the ALGON National Summit on
                  Credit Rating in Abuja

                   19th March, 2009

                                               Urban Development
                         -1-                  BANK OF NIGERIA PLC
     Document Outline

Domestic Debt Market Overview

  Requirements & Regulation

Key Characteristics of Debt Mrkt

     Debt Issuance Process

 UDBN Summary & Case Study
                             Urban Development
               -2-           BANK OF NIGERIA PLC
Domestic Debt Market Overview

  Requirements & Regulation

Key Characteristics of Debt Mrkt

     Debt Issuance Process

 UDBN Summary & Case Study
                             Urban Development
               -3-           BANK OF NIGERIA PLC
                                     Domestic Debt Market Overview
Market Overview
                                                           Listed rated instrument
                                                           Diversification
        Capital Markets                                    Municipal Finance Expertise
                                                           Credit Enhancement by
                                                            equity
                                                           Market related return
        Lack of understanding
        Uncertainties & political
         interference
        Insufficient track record                Issuing House/Underwriter
        Lack of project finance
         skills

                                                            Reasonable cost
                                                            Quick turn-around time to
                                                             meet constituents’
                                                             expectations
   Sub-National Governments                                 Technical assistance &
                                                             capacity building


                           Bridging the gap of investment flows

                                                                  Urban Development
                                           -4-                    BANK OF NIGERIA PLC
                                           Domestic Debt Market Overview

Market Overview (continued)
 The domestic debt market has experienced tremendous growth in
  both the number of issues and trading, with the market in outstanding
  Government & State bonds valued at N1.5 trillion (as at Aug 2008) and
  the yield curve now extends to 20 years*.
 There is significant foreign investment in Nigeria’s Bond Market.

Sovereign Bonds (sample maturity profile)
Tenor              3 Years          5 Years              7 Years        10 Years      20 Years
Issue Date        29-Aug-08       28-Nov-08             28-Sep-07      29-Aug-08     28-Nov-08
Maturity Date     29-Aug-11       28-Nov-13             28-Sep-14      29-Aug-18     28-Nov-28
Coupon Rates        10.5%           10.5%                 9.25%        10 - 7.0%       15.0%
Issue Amount      N20 billion     N10 billion          N37.2 billion   N20 billion   N10 billion
*Debt Management Office



                          Domestic yield curve recently extended to 20 years

                                                                         Urban Development
                                                 -5-                    BANK OF NIGERIA PLC
                                                      Domestic Debt Market Overview
Historical SNG Bond Issues
State & Local Government Bonds
                                              Year of                      Size
             State/Local Gov.                             Maturity
                                               Issue                       ₦ (m)
 1 Bendel State Loan Stock                     1978         1988                20
 2 Ogun State Revenue Bond                     1986         1996                15
 3 1st Lagos State Revenue Bond                1987        1990/99              30
 4   2nd Lagos State Revenue Bond              1988        1990/99              60
 5   1st Lagos Island LGA FRRB                 1992         1996               100
 6   1st Oyo State Revenue Bond                1987         1999                30
 7   1st Kaduna State Revenue Bond             1989         1996                30
 8   2nd Kaduna State Revenue Bond             1993         1996                30
 9   Edo State Revenue Bond                    2000        2000/06           1,000
10   Delta State Revenue Bond                  2000        2003/06           5,000
11   Yobe State Revenue Bond                   2002        2002/05           2,500
     1st tranche Ekiti State Revenue
12                                             2002        2002/05           2,500
     Bond
13   2nd tranche Ekiti State Revenue          2004         2002/05          1,500
14   Lagos State Bond                         2002         2002/09         15,000
15   Cross River State Tourism Dev.           2004         2004/07          4,000
16   1st Akwa Ibom State Revenue              2004         2005/07          6,000
                                                                                        **1st tranche of this Lagos State Bond
17   Lagos State Bond                        2008/**       2013/**        275,000         was N50bn out of total N275bn
           Source: Nigerian Securities & Exchange Commission/African Development Bank
                                                                                                Urban Development
                                                               -6-                              BANK OF NIGERIA PLC
Domestic Debt Market Overview

  Requirements & Regulation

Key Characteristics of Debt Mrkt

     Debt Issuance Process

 UDBN Summary & Case Study
                             Urban Development
               -7-           BANK OF NIGERIA PLC
                                  Requirements & Regulation

Applicable Regulation
The Investments and Securities Act (ISA) empowers the Securities
Exchange Commission (SEC) as the apex regulatory organisation for the
Nigerian Capital Market.
Provisions relating to State/Local Governments debt issuance:
   Total of loans outstanding shall not exceed 50% of prior year’s revenue
   Establishment of a sinking fund
   Rating report by accredited & SEC registered rating agency
   Authority to Accountant-General of Federation/State to deduct at
    source from the statutory allocation in the event of default
SEC may also issue further directives concerning the sinking fund,
underwriting, Irrevocable Standing Payment Order (ISPO), fund
management and so on.

                  ISA specifies that all SNGs bonds be credit rated


                                                                Urban Development
                                        -8-                     BANK OF NIGERIA PLC
                                 Requirements & Regulation
Parties involved
Bonds are either general revenue or project bonds (depending on the
source of funds for debt service/repayment)
Issuer           Sub-National Governments
Council          Authorises SNG to incur long-term debt
Issuing House/   Arranges the programme on behalf of the issuer
Underwriter
Advisor          Advises issuer on issuance requirements and regulations
Agent            Performs administrative functions relating to the note
Dealer           Sells/places the note in the market. The issuer decides
                 how many dealers (banks) they require on the program
Lawyers          (Issuer) review documentation & issue comfort opinion
                 (Arranger & dealers) draft documentation & issue
                 opinion
Auditor          Issuer’s auditor checks financial disclosure & compliance
                 (statutory requirements)
             Financial Advisor can co-ordinate entire process for SNG
                                                              Urban Development
                                       -9-                   BANK OF NIGERIA PLC
Domestic Debt Market Overview

  Requirements & Regulation

Key Characteristics of Debt Mrkt
                  t




     Debt Issuance Process

 UDBN Summary & Case Study
                             Urban Development
               - 10 -        BANK OF NIGERIA PLC
                                          Key Characteristics of Debt Mrkt


                                           However,
                                            there is
                                            mutual
                                            benefit
                                             from
                                           working
                                           together
SNG benefits:                                                Banking Sector benefits:
 Leveraging of budget allocation using private               Development of domestic capital
   sector capital                                                market
 Increased rate of project delivery                          Diversification of assets
 Increased revenues/IGR
 Fiscal discipline & institutional strengthening
 Achievement of campaign commitments



                      Result: Win-Win situation benefiting both parties

                                                                            Urban Development
                                                    - 11 -                 BANK OF NIGERIA PLC
                                        Key Characteristics of Debt Mrkt
Domestic Standards
Key Features                                         Example:
Average Tenor    3 - 20 years                        The National Pension Commission’s
Interest Rate    10 - 25%                            investment guidelines specify:
(coupon rate)
                                                      credit rating is crucial in
Loan Type        Senior
Syndication      N/A
                                                       determining its exposure
Flexibility on   N/A                                  minimum credit rating for bond
drawdown                                               investments is BBB- investment
Special       Credit rating and trustee                grade.
Condition     agreement required                      benchmark for returns is
Collateral    First ranking charge over fixed          weighted average rate on 5-year
              assets and revenue, and                  FGN bond
              supporting guarantee
                                                      required yield for corporate bond
Time to close 9 - 12 months
Documentation Bond offering circular (bond
                                                       is 1% premium over the FGN
              prospectus)                              benchmark

                          Demand side dictates need for Credit Rating

                                                                     Urban Development
                                                - 12 -              BANK OF NIGERIA PLC
Domestic Debt Market Overview

  Requirements & Regulation

Key Characteristics of Debt Mrkt

     Debt Issuance Process

 UDBN Summary & Case Study
                             Urban Development
               - 13 -        BANK OF NIGERIA PLC
                       Debt Issuance Process

Building Blocks
                                                Achievement of
                                                 development goals
                                                Good governance
                                                Fiscal discipline




 SNGs’
 Development
 need

                  Building blocks to success

                                               Urban Development
                             - 14 -            BANK OF NIGERIA PLC
                                  Debt Issuance Process (contd.)

Key Stages
 Preliminary decisions
 Structuring the Issue
    Type of Issue
    Size
    Credit Enhancement & issue discount/premium
    Maturity
    Redemption provisions
    Pricing
 Credit Rating
 Document preparation including Offering Circular
 Distribution/Marketing
 Closing

                  Standardised and clear process for Debt Issuance

                                                               Urban Development
                                        - 15 -                BANK OF NIGERIA PLC
                                  Debt Issuance Process (contd.)
Pre-conditions for a Successful Bond Issuance
 Sound legal framework
 Sound public policies
 Credit Rating
 Ability to manage the bond issue – payment of coupons & final
  settlements
 Good long-term strategy & planning, eg. economic development
  strategy and long term capital development plans
 Sound and stable leadership & management
       Politicians & officials
       Know your problems, have a plan to deal with them, and show
        some progress


                                  Hurdles to cross

                                                     Urban Development
                                        - 16 -       BANK OF NIGERIA PLC
                                Debt Issuance Process (contd.)

Pros & Cons

  Pros:    Cheaper alternative source of capital
           Leverage
           Structural flexibility
           Longer tenure


  Cons:  Huge administrative cost
           Payment of coupon is immediate regardless of whether
            bond is used or not
           Cumbersome & long transaction process
           Refinancing risk at maturity


                       Overall benefits outweigh the costs

                                                             Urban Development
                                      - 17 -                 BANK OF NIGERIA PLC
Domestic Debt Market Overview

  Requirements & Regulation

Key Characteristics of Debt Mrkt

     Debt Issuance Process

 UDBN Summary & Case Study
                             Urban Development
               - 18 -        BANK OF NIGERIA PLC
                            UDBN’s work with SNGs

 Recently created the Municipal Finance Desk to cater exclusively to
  the infrastructure development needs of SNGs.
 Provided loan facilities to SNGs for various development projects,
  such as Markets, Motorparks, Housing, Water Scheme, Urban Mass
  Transit Buses.
 Organised capacity building workshops on Resource Mobilisation,
  Strategies for Sustainable Financing of Urban Infrastructure &
  Public Private Partnerships.
 Undertook pilot projects in the Sustainable Cities Programme (SCP),
  a UN-Habitat initiative
 Provided grant funding for project preparation studies in Urban
  Renewal and Slum Upgrading under the MDG programme in two
  LGAs in each of the six geo political zones


             UDBN – a proven Development Partner to SNGs
                                                       Urban Development
                                  - 19 -               BANK OF NIGERIA PLC
          Case Study – Johannesburg, South Africa
City of Johannesburg Bond Issue:
   One Billion Eight Hundred South African Rand Bond for 15 years
    being latest issue ( May 2008). 1st Issue: ZAR1Billion , May 2004.
    Now 5 issues altogether
   Partially guaranteed for upto 40% of outstanding principal by IFC
    and DBSA. Oversubscribed 2.3 times
   Enhanced bond was rated AA- Zaf by Fitch Ratings
   Reduced the weighted average cost of borrowing: Borrowing cost
    reducing from 230bps above Government’s to 120bps.
   Established a credit curve and built a track record in the capital
    markets
   Initiated the municipal bond market and brought competitive pricing
   Optimised and extended their funding maturity profile matched to
    the asset life profile.
Other References in Africa: Cape Town A+ & A1 long-term and short
term debt respectively; Nelson Mandela Metropolitan Municipality- A1
short term & A long term.
                                                          Urban Development
                                      - 20 -             BANK OF NIGERIA PLC
           Case Study – Johannesburg, South Africa
Background

 Bond    Nominal   Date of   Clearing      MTM over      Benchmark   Tenure   Coupon
 Name    Amount    Issue     Spread over   RSA                                   %
                             RSA           benchmark
                             benchmark     (bps)
                             (bps)
 COJ01   R1        April     230           90            R153        6        11.95
         billion   2004                                              years

 COJ02   R1        June      164           120           R157        12       11.90
         billion   2004                                              Years

 COJ03   R700      April     154           100           R157        8        11.95
         million   2005                                              Years

 COJ04   R1.2      June      120           103           R203        12       9.00
         billion   2006                                              Years


 COJ05   R1.8      May       230           150           R203        15       12.205
         billion   2008                                              Years




                                                                     Urban Development
                                                - 21 -               BANK OF NIGERIA PLC
                                            Financing SNGs
Trends in Sub-National Governments Financing

                  Stage 1         Stage 2       Stage 3       Stage 4       Stage 5       Stage 6


                      Fed            Fed          Budget/
     Source of                                                  Capital        Capital      Capital
                      Govt           Govt         Capital
      Funding         Budget         Budget                     Market         Market       Market
                                                  Market


                                                                Private
  Intermediary/        Govt          Govt          Govt
                                                                Sector/       Private
        Project        Dept          Agency        Agency                     Sector
                                                                Govt
Implementation                                                  Agency


                       Sub           Sub           Sub           Sub           Sub          Sub
     Recipient         National      National      National      National      National     National
                       Govt          Govt          Govt          Govt          Govt         Govt


         Nigeria – Stage 3 – Capital market is beginning to supplement govt funding

                                                                                 Urban Development
                                                     - 22 -                      BANK OF NIGERIA PLC
      Contact Details


Urban Development Bank of Nigeria Plc
   Plot 977 Central Business District,
           P.M.B. 272, Garki,
              Abuja, FCT.

           Tel: 09-671 0863

          www.udbng.com

          Info@udbng.com
        enquiries@udbng.com


                                   Urban Development
                 - 23 -           BANK OF NIGERIA PLC

				
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