Lagos State Government

₦100 billion Series III 10-year 12.25% Fixed Rate Bond Due 2030 2019 Final Bond Rating Report

2019 Municipal Bond Rating Report Lagos State Government of Nigeria ₦100 Billion Series III 10-Year 12.25% Fixed Rate Bond Due 2030 under the ₦500 Billion Debt Issuance Programme

Issue Rating: High quality debt issue with very low credit risk; very strong capacity to pay returns Aa- and principal on local currency debt in a timely manner.

Issue Date: 11 February 2020 RATING RATIONALE Expiry Date: 31 January 2021 • Agusto & Co. hereby assigns a “Aa-“ rating to the Lagos State Government’s The Issue rating will be subject to annual (“Lagos State”, “LASG”, “the Issuer” of “the State”) ₦100 Billion Series III 10-Year monitoring and review on the anniversary of the Bond. 12.25% Fixed Rate Bond Due 2030 (“Series III”, “the Issue” or “the Bond”) under the LASG registered ₦500 Billion Bond Issuance Programme (“BIP” or “the Lagos State Rating: A+ Programme”). The assigned Issue rating reflects our opinion on the Issuer’s Expiry Date: 30 September 2020 strong capacity to service the Series III Bond obligations (coupon and principal) INSIDE THIS REPORT jointly from the Lagos State’s Consolidated Debt Service Account (“CDSA”) as Rating Rationale 1 well as the issuance of an Irrevocable Standing Payment Order (“ISPO”) approved The Issuer Profile 4 by the Federal Ministry of Finance. Bond Structure 7 Financial Condition & 10 • In the financial year ended 31 December 2018, Lagos State continued to make Forecast laudable efforts at improving tax compliance and streamlining levies and fees in Outlook 14 the State. These among other initiatives resulted in a 17% increase in IGR to Financial Summary 15 Appendix 17 ₦429 billion (representing 66% of total revenue) from the prior year. In addition, Rating Definition 20 the State enjoys a diversified pool of income consisting of a good share of centrally distributed revenue in the form of statutory allocation (circa 9% of total Analysts: revenue) and value added tax (15% of total revenue) as well as grants from

Development Finance Institutions. In the same vein, the Issuer has demonstrated Ikechukwu Iheagwam [email protected] commitment to developing the State given the significant investments in infrastructure over the last decade in order to boost economic activities and Isaac Babatunde thereby increase income generation through taxes. [email protected] • Furthermore, the State boasts of a peaceful and stable political environment Agusto & Co. Limited which is conducive for business activities and remains one of the most attractive UBA House (5th Floor) commercial and investment destinations in Nigeria in spite of the weakened 57, Marina macroeconomic conditions in the country. One of the major drawbacks is the Lagos State’s rising debt level coupled with its continuous breach of the terms and Nigeria conditions (delay in remitting funds on a monthly basis from its CDSA into the www.agusto.com respective sinking fund accounts) in accordance with the Trust Deeds on its

existing bonds in issue. However, LASG provides lump-sum payments to meet maturing Bond obligations as and when due. This Series III Bond Rating Report should be read in conjunction with Agusto & Co’s 2019 Rating Review Report for Lagos State Government

The copyright of this document is reserved by Agusto & Co. Limited. No matter contained herein may be reproduced, duplicated or copied by any means whatsoever without the prior written consent of Agusto & Co. Limited. Action will be taken against companies or individuals who ignore this warning. The information contained in this document has been obtained from published financial statements and other sources which we consider to be reliable but do not guarantee as such. The opinions expressed in this document do not represent investment or other advice and should therefore not be construed as such. The circulation of this document is restricted to whom it has been addressed. Any unauthorized disclosure or use of the information contained herein is prohibited.

Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

TRANSACTION PARTIES • Lagos State issued ₦100 billion Series III 12.25% Fixed Rate Bond in Janaury

Issuer: 2020 to finance key infrastructure projects in the State. The proposed Series III Lagos State Government Bond coupon will be determined through a book-building process and payable semi-annually over the ten-year tenor of the Bond. The Series III Bond principal Lead Issuing House/Book Runner: Chapel Hill Denham Advisory Limited will enjoy a moratorium of 24 months from the Issue date and subsequently be amortized bi-annually over the remaining eight years. Joint Issuing Houses/Book Runners: Comercio Partners Capital Limited • In accordance with the Series III Trust Deed, the Issuer reserves the sole Coronation Merchant Bank Limited FBNQuest Merchant Bank Limited discretion to redeem all or part of the outstanding bond, and at par, after 2 years FCMB Capital Markets Limited from the issue date provided not less than 30 days’ notice is given to the Kairos Capital Limited Lead Capital Plc bondholders. The Issuer can only exercise this early redemption call option, after Lotus Capital Limited a resolution by the State Executive Council is presented to the Joint Trustees and Phoenix Global Capital Markets Limited other regulatory approvals are obtained. Quantum Zenith Capital & Investments

Limited Radix Capital Partners Limited • The Series III Bond obligations will be jointly serviced from monthly deductions SFS Financial Services Limited from the Lagos State CDSA as well as the issuance of an ISPO approved by the Stanbic IBTC Capital Limited United Capital Limited Federal Ministry of Finance authorizing monthly deductions from the State’s Vetiva Capital Management Limited share of statutory allocation into a designated sinking fund account (SFA) to be

Bond Trustees: managed by the Bond Trustees for the benefit of the Series III Bondholders. In ARM Trustees Limited line with the Series III Trust Deed, the sum of ₦50.8 million will be transferred FBNQuest Trustees Limited monthly from the CDSA from date of issue for 24 months into the SFA. Thereafter, PAC Trustees Limited Paxhill Minerva Limited the monthly sum from the CDSA shall increase to ₦694.4 million over the Radix Trustees Limited remaining tenor of the Bond. In addition, a monthly ISPO in the sum of ₦1 billion, StanbicIBTC Trustees Limited Sterling Asset Management and Trustees duly approved by the Federal Ministry of Finance, will be deducted from the Limited State’s share of statutory allocation from January 2020 into the SFA over the STL Trustees Limited Union Trustees Limited tenor of the Bond to meet the Bond obligations as and when due. United Capital Trustees Limited • Subsequent to the proposed Bond issuance, the Issuer’s estimated outstanding Solicitors to the Issuer: net debt (total debt less cash, balances in sinking fund accounts and quoted G. Elias & Co Olaniwun Ajayi LP investments) of ₦736.4 billion will represent about 113% of 2018 revenue. This SimmonsCooper Partners is above the 50% limit set by the Investment and Securities Act (ISA) 2007

Solicitors to the Issue: (section 223) for state government’s borrowings. However, the Investment and Banwo & Ighodalo Securities (Exemption of State Government, etc) Order 20161, exempts state M.A. Banire & Associates governments in Nigeria from the operations of section 223 of ISA 2007 for a Solicitors to the Trustees: three-year period, subject to meeting the prescribed conditions. The Exemption Templars Order is mainly contingent on the state maintaining an IGR not less than 60% of Registrars: consolidated revenue in the preceding three years as well as its total annual debt First Registrars & Investor Services Limited service obligation arising from the proposed issuance not exceeding 40% of the

Reporting Accountant: total revenue accrued to its consolidated revenue fund in the twelve months Ernst & Young period preceding the proposed new issuance. The Exemption Order is in the

process of being extended for another three years following its expiration.

1 The Investment and Securities (exemption of state government, etc) Order 2016 (S.I No. 16 of 2016 under page B459 - 462), exempts state governments in Nigeria and the Federal Capital Territory from the operation of the provisions of section 223 of the ISA of 2007. This Order was made by the Honourable Minister of Finance, Kemi Adeosun, at Abuja on 16 December 2016 and valid for a period of three years.

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Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

Stock Brokers: Chapel Hill Denham Securities Limited • Lagos State has maintained an IGR to total revenue ratio in excess of 60% over Greenwich Securities Limited Lead Securities & Investment Limited the last decade, with an average of 70% over the last three years (2016 - 2018). MBC Securities Limited Following the proposed Series III Bond issuance, LASG’s total annual debt service Nigerian Stock Brokers Limited 2 Reading Investment Limited obligations would represent about 24% of the consolidated revenue fund, which Signet Investments & Securities Limited is lower than the 40% limit approved for states based on the Exemption Order. StanbicIBTC Stockbrokers Limited

Receiving Banks: • Based on Agusto & Co.’s sensitized projections over the forecast period, the First Bank of Nigeria Limited Issuer’s cumulative free cash flow will be sufficient to cover interest payment First City Monument Bank Limited 12.6 times. In addition, the amount to be set aside by way of IGR and ISPO Polaris Bank Limited Stanbic IBTC Bank Limited contributions (as stated in Series III Trust Deed) into the SFA (excluding United Bank for Africa Plc investment income and bond-related expenses) over the forecast period will be Zenith Bank Plc sufficient to cover the total Bond obligations resulting in an SFA adequacy of KEY TRANSACTION STRUCTURE 1.02 times. In our view, this demonstrates the adequacy of the funds to be set Bond Tenor: aside in the SFA to meet the Series III Bond obligations as and when due. 10 years, with semi-annual payment of coupon and bi-annual repayment of principal after 2 years of principal • Agusto & Co. notes that the State’s continuous delay in remitting funds on a moratorium monthly basis from its CDSA into the respective sinking fund accounts of existing

Bond Call Option: bonds in issue is a breach of the terms of the Trust Deeds. We consider this as a Callable at par after 2 years from the issue rating concern given that this practice may be extended to the proposed Series date subject to Issuer obtaining prior regulatory approval and issuance of requisite III Bond. In our view, any changes to the repayment structure should be notice to Bondholders supported by necessary amendments to the bond documents and approved by

Bond Status: the relevant authorities. Senior, direct, unsecured and unconditional obligation of the Issuer Figure 1: Strengths, Weaknesses & Challenges

Use of Bond Proceeds: Strengths The net proceeds will be used by the Issuer to execute priority projects as per details in • Strong internally generated revenue the utilization of project schedule • High level of independence from centrally collected revenue • Stable and peaceful political environment Source of Repayment: Consolidated Debt Service Account (CDSA) • Sustained commitment to infrastructure development and Irrevocable Standing Payment Order • Commercial hub of Nigeria (ISPO). The sum of ₦50,832,564 will be transferred monthly from the CDSA for 24 Weaknesses months and thereafter the sum shall be increased to ₦694,396,318 monthly over the • Continuous delays in monthly remmitance of funds to the remaining tenor of the Bond. In addition, the respective sinking fund accounts of existing bonds sum of ₦1,000,000,000 will be deducted as • Rising general and adminstrative expenses monthly ISPO from the State’s share of statutory allocation •Rising debt level

Listing: Challenges FMDQ Securities Exchange and/or The Nigerian Stock Exchange • Reduction in centrally collected revenue due to volatility in crude oil prices in the international market • Overstretched infrastructure due to high population density

2 In November 2019, LASG repaid the final coupon and principal obligations on the ₦80 billion Bond issued in November 2012, thus effectively reducing the State’s overall debt level and debt service obligation prior to the issuance of the proposed ₦100 billion Bond

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Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

THE ISSUER PROFILE

ABOUT LAGOS STATE Lagos State was created on 27 May 1967 through the States Creation and Transitional Provisions Decree No. 14 of 1967, which divided Nigeria’s federation into 12 states. The State was Nigeria’s administrative capital from 11 April 1968 until 12 December 1991, when the seat of Government was moved to Abuja.

Figure 2: Map of Lagos State showing Prominent Locations

Lagos State occupies circa 3,577 sq. km making it the smallest state in the country by landmass (21% is wetland). The State is bounded in the North and East by Ogun State, in the West by the Republic of Benin and stretches over 180 kilometres along the Guinea Coast of the Bight of Benin on the Atlantic Ocean. Lagos consists of several landmasses separated by a number of creeks, lagoons and rivers. Despite the small landmass, Lagos is estimated to have a population of about 26.4 million people in 2018.

Lagos was predominantly inhabited by the sub-nationality of Aworis and Ogus in the Ikeja and Badagry divisions and they formed the indigenous population. Other pioneer immigrant settlers such as the Edos, Saros, Brazilians, Kannike/Tapa are collectively called Lagosians. The dominant language spoken in the State is Yoruba. Pidgin English (diluted form of English) is also spoken by majority of Lagos residents.

The State comprises five administrative divisions3, 20 Local Governments and 37 Local Council Development Areas. The most populous local governments in the State are Alimosho, Ajeromi/Ifelodun and Shomolu. Although the city’s expansion is constrained by wetlands and the Atlantic Ocean, some areas such as Ibeju-Lekki and Epe are experiencing high residential and commercial growth due to ongoing land reclamation projects. The State has two airports - one international and one domestic, both located at Ikeja. In addition, the State plays host to Nigeria’s leading port, which is one of the largest and busiest in Africa. The Lagos port is divided into three - the Lagos port, Apapa port & Tin Can port, each serving varying needs.

Lagos State is the commercial capital of Nigeria as it contributes about 30% to the Nation’s Gross Domestic Product (GDP) and accounts for over 60% of Nigeria’s industrial investments, foreign trade and commercial activities. In 2019, Lagos’ GDP is estimated to grow by 4.2% to ₦30.8 trillion4 and LASG’s GDP per capita for 2019 is estimated at USD$3,244.27 (2018: USD$3,212.82).

3 The five administrative divisions are known as IBILE – Ikorodu, Badagry, Ikeja, Lagos Island and Epe 4 Lagos Bureau of Statistics, Ministry of Economic Planning and Budget - Lagos State Government Socio-Economic Characteristics 2018/2019

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Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

POLITICAL STRUCTURE Lagos State Government has three arms of government namely: Executive, Legislature and Judiciary.

The Executive arm of the State Government is responsible for daily administration and is led by the Executive Governor, Mr Babajide Olusola Sanwo-Olu who is assisted by the State executive council.

The Governor, Mr Babajide Sanwo-Olu holds a Bachelor’s degree in Surveying & Geo-Informatics and a Master of Business Administration (MBA) in Management, both from the University of Lagos. Mr Sanwo-Olu is also an alumnus of the prestigious Harvard Kennedy School of Government, London Business School and the Lagos Business School. In addition, he is a member of the Nigerian Institute of Directors (IOD), Chartered Institute of Personnel Management (CIPM), and Fellow of Nigeria Institute of Training and Development (NITAD).

In 2003, he was appointed first as Special Adviser to the Deputy Governor on Corporate Matters; and later as Special Adviser to the Executive Governor on Corporate Matters in 2004. Later, he was appointed acting Commissioner for Economic Planning & Budget from 2004 to 2005 and became the substantive Commissioner for Commerce and Industry in 2007. Mr Sanwo-Olu was appointed the Chief Executive Officer of the Lagos State Property Development Corporation (LSPDC) in 2016. On 29 May 2019, he was sworn in as the elected Governor of Lagos State for a term of four years.

Table 1: Key Officers of the Lagos State Government Name Responsibility Dr Hamzat Kadri Obafemi Deputy Governor Mrs Jaji Folashade Secretary to the State Government Mr Muri-Okunola Hakeem Head of Service Mr Ayinde Tayo Akinmade Chief of Staff Mr Sayannwo Gboyega Deputy Chief of Staff

Honourable Commissioners Ministry Mr Onigbanjo Moyosore Jubril SAN Attorney General/Justice Prince Lawal Wasiu Gbolahan Agriculture Dr (Mrs) Akande Sulola Fibisola Commerce, Industry and Cooperatives Mr Egube Samuel Awerosuo Economic Planning and Budget Mrs Adefisayo Folasade Omobola Education Engr Odusote Olalere Energy and Natural Resources Mrs Ponnle Ajibola Yewande Olufunke Establishment, Training and Pensions Dr Olowo Rabiu Onaolapo Finance Prof Abayomi Emmanuel Akinola Health Mrs Akinbile-Yussuf Uzamat Home Affairs Hon Fatai Akinderu Moruf Housing Mr Omotoso Gbenga Information and Strategy Mrs Arobieke Yetunde Local Government and Community Affairs Dr Salako Idris Okanla Physical Planning and Urban Development

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Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

Mr Fahm Hakeem Popoola Science and Technology Dr Ahmed Adewale Special Duties and Inter-Governmental Relations Mrs Shulamite Olufunke Adebolu Tourism, Arts and Culture Dr Oladeinde Frederic Abimbola Transportation Mr Bello Olatunji Water Resources and Environment Mrs Dada Cecilia Bolaji Women Affairs and Poverty Alleviation Mr Dawodu Ganiyu Olusegun Youth and Social Development

The Legislative arm of the State Government is empowered by the 1999 constitution (as amended) to make laws for Lagos State. The Lagos State House of Assembly is the body responsible for carrying out the legislative function. The Speaker, Rt. Hon. Mudashiru Ajayi Obasa leads the Lagos State House of Assembly. All the 40 elected members of the House belong to the All Progressive Congress (APC) political party and are elected for a term of four years.

The Judiciary is the arm of government empowered by the constitution and laws of the State with the responsibility of the general administration of justice in the State. The High Court of Lagos is the highest court of law in the State and Hon. Justice Kazeem Olanrewaju Alogba serves as the Chief Judge. The Lagos State judiciary is made up of the State High Courts, Magistrate Courts and Customary Courts.

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Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

BOND STRUCTURE Lagos State issued ₦100 billion Series III 12.25% Fixed Rate Bond in January2020 to finance key infrastructure projects in the State. The proceeds from the Series III bond issuance will be used to fund projects in the Health, Education, Waterfront, Works & Infrastructure, Housing, Youth & Social Development, Justice, Sports, Environment, Transportation, Waste Management and Water Resources sectors in the State (see table 2). The detailed projects to be financed under each of these sectors from the net proceeds of the Series III Bond issuance are stated in appendix 1.

Table 2: Utilization of Series III Bond Proceeds - Schedule of Projects S/N Project Name & Description Amount to be funded from % of Bond Bond Proceeds (N) Proceeds 1 Ministry of Works & Infrastructure 41,445,166,809.83 41.4% 2 Ministry of Environment and Water Resources 10,075,371,650.17 10.1% 3 Lagos Metropolitan Area Transport Authority (LAMATA) 9,776,321,010.00 9.8% 4 Lagos Water Corporation 8,890,691,109.23 8.9% 5 Lagos Waste Management Authority (LAWMA) 5,865,792,606.00 5.9% 6 Ministry of Health 5,689,409,675.69 5.7% 7 Lagos State Ferry Services Company 4,888,160,505.00 4.9% 8 Ministry of Waterfront Infrastructure Development 4,594,870,874.70 4.6% 9 Ministry of Housing 4,582,161,657.39 4.6% 10 Ministry of Education 1,955,264,202.00 2.0% Issue Cost 2,236,789,900.00 2.2% Total 100,000,000,000.00 100% Source: Lagos State Government of Nigeria ₦100 billion Series III 12.25% Fixed Rate Bond supplementary prospectus

The Series III Bond will attract a fixed coupon rate to be determined via a book-building process payable semi- annually in arrears over the ten-year tenor of the bond. The Series III Bond principal will be amortized semi- annually after a two-year moratorium, over the remaining tenor of the Issue. In the event of an oversubscription of the Series III Issue, the Issuer may take up an additional fifteen per cent (15%) of the qualifying book and issue bonds up to a maximum value.

In accordance with the Series III Trust Deed, the Issuer reserves the sole discretion for early redemption of the bond, which may be in part or whole, and at par, following the second anniversary of the Issue, provided not less than 30 days irrevocable notice is given to the Series III Bondholders. In addition, the Issuer can only exercise this early redemption call option, after a resolution by the Lagos State Executive Council has been presented to the Joint Trustees and subject to obtaining the requisite regulatory approvals.

Premised on the provisions of the Lagos State Bonds, Notes and Other Securities Issuance Law of 2008 (“Bond Law”), the Lagos State Executive Council via a resolution dated the 20 July 2016 and the Resolution of State House of Assembly of 27 September 2016, resolved and established a ₦500 billion Debt Issuance Programme and issued the first series with an aggregate nominal value of ₦47 billion in December 2016. Subsequent to the issuance of the Series I Bond, LASG issued a Series II Bonds in four tranches with the aggregate nominal value of ₦97.3 billion comprising ₦46.3 billion (Series II Tranche I), ₦38.7 billion (Series II Tranche II), ₦6.91 billion (Series II Tranche III) and ₦5.34 billion (Series II Tranche IV) in 2017/2018.

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Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

The Series III Bond obligations will be jointly serviced from the Consolidated Debt Service Account (“CDSA”) of Lagos State Government and the issuance of an Irrevocable Standing Payment Order (“ISPO”) approved by the Federal Ministry of Finance authorizing monthly deductions from the State’s share of statutory allocation. The Lagos State Bonds, Notes and Other Securities Issuance Law of 2008 (“Bond Law”) provides for the creation of the designated Series III Sinking Fund Account (SFA). The appointed Joint Trustees will manage the SFA, into which appropriate monthly contributions shall be made from the CDSA and ISPO in accordance with the terms and conditions of the Series III Trust Deed. The Bond Law also provides that a minimum of fifteen per cent (15%) of the State’s internally generated revenue shall be deposited into the CDSA on a monthly basis, out of which public debt repayment obligations of the State shall be met.

In line with the Series III Trust Deed and Pricing Supplement, the sum of ₦50.8 million will be transferred from the CDSA on a monthly basis from the date of issue for 24 months into a designated SFA to meet maturing obligations. Thereafter, the monthly sum to be transferred from the CDSA shall increase to ₦694.4 million over the remaining tenor of the Bond. In addition, a monthly ISPO in the sum of ₦1 billion (duly approved by the Federal Ministry of Finance) will be deducted from the State’s share of statutory allocation from January 2020 into the SFA over the ten-year tenor of the Bond to meet the Bond obligations as and when due.

Table 3: Proposed Bond Repayment Schedule – Series III Bond Semi-annual Coupon Payment Principal Repayment Principal Obligation periods (₦'million) (₦'million) Outstanding (₦'million) 1st 6,125 - 100,000 2nd 6,125 - 100,000 3rd 6,125 - 100,000 4th 6,125 - 100,000 5th 6,125 3,855 96,144 6th 5,889 4,091 92,053 7th 5,638 4,342 87,711 8th 5,372 4,608 83,103 9th 5,090 4,890 78,212 10th 4,790 5,189 73,023 11th 4,472 5,507 67,515 12th 4,135 5,845 61,670 13th 3,777 6,203 55,467 14th 3,397 6,582 48,884 15th 2,994 6,986 41,898 16th 2,566 7,414 34,484 17th 2,112 7,868 26,615 18th 1,630 8,350 18,265 19th 1,118 8,861 9,404 20th 576 9,404 0 Total 84,185 100,000

The Issuer undertakes that at least 15 business days prior to the end of every month during each year in which the bonds remain outstanding, that the said sum above shall be transferred from the CDSA into the Series III SFA account. The amounts to be set aside in the SFA will be utilized for principal and coupon payment or early redemption prepayment as stated in the Series III Trust Deed. In line with the Series III Trust Deed, the Issuer irrevocably undertakes not to revoke or modify the terms under which sums from the CDSA are deposited in the Series III Sinking Fund Account throughout the tenor of the Series III Bonds without the prior written consent of the Joint Trustees and the prior approval of the Securities and Exchange Commission.

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Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

Agusto & Co. notes that Lagos State has continuously breached the terms and conditions of the Trust Deeds for existing Bonds in issue by not making monthly remittances from its CDSA into the respective SFA but make lump- sum provision of funds to meet maturing Bond obligation as and when due. We consider this a rating concern as the State is in breach of its agreement entered into with the Bondholders evidenced by the Trust Deed and this practice may be extended to the proposed Series III Bond. In our view, any change to the repayment modalities should be supported by necessary amendments to the bond documents and approved by the relevant authorities.

In accordance with the Series III Trust Deed, in the event that the amount standing to the credit of the Series III SFA is not sufficient to discharge the Issuer’s debt service obligations, the outstanding amount in the CDSA shall first be used to fund the shortfall and if same is insufficient to pay the deficiency, the outstanding balance shall be paid from the State Consolidated Revenue Fund and assets of the State with the approval of the Lagos State House of Assembly.

LAGOS STATE EXECUTIVE COUNCIL RESOLUTION The Executive Council of Lagos State Government held a meeting on 8 October 2019 and approved the issuance of a fixed rate bond up to ₦100 billion under the ₦500 billion Debt Issuance Programme either by way of a public offering, bookbuild, private placement or other methods as approved by the regulatory authorities. In addition, the Lagos State Executive Council appointed Chapel Hill Denham Advisory Limited as the Lead Issuing House primarily responsible for the proposed Bond issuance and book building. The resolution also empowered the Governor, the Honourable Commissioner of Finance, Justice/Attorney General to approve and execute all documents on behalf of the State. Furthermore, the Governor via a letter dated 5 November 2019 applied to the Federal Ministry of Finance for an ISPO approval in the sum of ₦1 billion monthly in respect of the proposed up to ₦100 billion Series III Bond. The ISPO deductions is expected to commence from January 2020 until maturity of the Bond in December 2029.

LAGOS STATE HOUSE OF ASSEMBLY RESOLUTION The Lagos State House of Assembly (LSHA) at its session held on 22 November 2019 amended the 2019 Appropriation Law and approved the Bond issuance of up to ₦100 billion under the existing ₦500 billion Programme in line with the State Executive Council request. Furthermore, LSHA authorized the State Executive Council to request for an ISPO as deemed appropriate to secure the repayment of the Bond obligations. The House resolution was contained in a letter with reference number: LSHA/LM/C/14/23 dated 22 November 2019 and signed by the speaker – Rt. Hon. Mudashiru Ajayi Obasa and the Clerk of the House – Mr A. A. Sanni.

EXEMPTION OF APPLICATION OF SECTION 223 OF THE INVESTMENT AND SECURITIES ACT 2007 Pursuant to the Investments and Securities Act 2007 (Exemption of States Government, Etc.) Order 2016 (dated 16 December 2016), the Honourable Minister of Finance (Mrs. Kemi Adeosun) stated conditions for state governments to be granted exemption from applying Section 223 of the ISA with regards to limit of states debt to revenue ratio when issuing instruments in the capital market. The key considerations of this Exemption Order includes IGR shall not be less than sixty per cent of consolidated revenues for three years; total annual debt service obligation shall not at any particular time exceed forty per cent of the total revenue; proceeds of bonds to be issued pursuant shall only be applied on verifiable capital projects, duration for the exemption granted under this Order shall be for three years from the date of commencement of this Order, amongst others’. The Exemption Order is in the process of being extended for another three years following its expiration on 16 December 2019.

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Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

FINANCIAL CONDITION & FORECAST

ANALYSTS’ COMMENTS • Lagos State Government intends to issue in December 2019 up to ₦100 billion in the form of a 10-Year Fixed Rate Bond Due 2029 (Series III) under the ₦500 billion Bond Issuance Programme. • We have analyzed the audited financial statements of Lagos State for the period ended 31 December 2018, estimated the 2019 year-end closing figures and sensitized the Issuer’s cashflow forecast over the life of the Bond in order to ascertain the Issuer’s capacity to meet obligations under the proposed bond issuance. PERFORMANCE REVIEW Lagos State Government sources of revenue include taxes on personal income, fines, licenses, fees and levies on business activities, as well as income from investments, altogether known as internally generated revenue. In addition, the State receives a monthly share of revenue from the Federation Account and Value Added Tax Pool as well as grants from development institutions and the FGN for specific projects.

The State presented the Third Transitional International Public Sector Accounting Standards (IPSAS) Financial Statements for the year ended 31 December 2018. During the year ended 31 December 2018 (FYE 2018), Lagos State’s total revenue rose by 28% to ₦653 billion, due to increases across all principal revenue lines. Share of centrally distributed revenue (statutory allocation) by the Federal Government increased by 37% year-on-year (YoY) to ₦59.7 billion, while value added tax and internally generated revenue grew by 23% and 17% to ₦99 billion and ₦429 billion respectively. A breakdown of LASG’s total revenue for 2018 showed that internally generated revenue (IGR), which is considered the most stable source of income, accounted for 66% (2017: 72%), while share of value added tax and statutory allocation distributed from the central government accounted for 15% and 9% respectively. In addition, other capital receipts (refund from Paris Club and refund by FGN for road construction) accounted for 10% of the State’s revenue in FYE 2018.

In FYE 2018, Lagos State reported a total expenditure of ₦649.6 billion, comprising operating expenses (42%) and non-operating expenses (58%). During the financial year ended 31 December 2018, Lagos State’s total operating expenses rose by 16% to ₦272.9 billion with the main components being personnel cost5 (37%), overheads6 (40%) and subvention to parastatals (18%). Although personnel expenses increased in absolute terms by 10% year-on- year in 2018, the State’s personnel cost to revenue ratio of 16% is in line with our expectation and compares favourably with other states in the country. In 2018, the State’s non-operating expenses consisting of capital expenditure (55%), depreciation on property, plant and equipment (26%) and public debt charges (19%) declined significantly to ₦376.6 billion (2017: ₦473 billion).

In 2018, the State spent about ₦209.9 billion on capital projects, which was significantly lower than ₦278 billion recorded in the prior year, while public debt charges as a proportion of revenue remained within acceptable limits at 13% in FYE 2018, despite the rise in aggregate debt levels.

LASG’s statement of financial performance for the year ended 31 December 2018 showed an overall surplus of ₦3.4 billion, up from a deficit of ₦196.7 billion in the prior year.

5 This comprises wages, salaries and employment benefits of civil servants and public office holders in the State 6 This consist of general and administrative expenses such as consultancy & professional services, general office expenses, special duties expenses, security expenses and maintenance services

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Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

Going forward, we estimate that LASG’s IGR will increase by circa 5% to ₦451.4 billion by the end of 2019. In addition, VAT is expected to continue its upward trajectory and grow by 12% year-on-year to ₦110.9 billion on account of increasing commercial activities in the State, while share of statutory allocation is poised to decline by 12% to ₦52.8 billion due to the ongoing volatility in the price of crude oil in the international market and its associated impact on centrally collected revenue. Overall, we forecast Lagos State’s total revenue to close at ₦666 billion by end of 2019, with IGR accounting for 68% and VAT and share of SA representing 17% and 8% respectively. In our view, Lagos State remains one of the most economically viable states in the country that can function with or without a share of centrally collected revenue, which is susceptible to exogenous factors.

We expect Lagos’ expenditure levels to remain within acceptable limits by end of 2019 and thus estimate personnel and general administrative expenses to revenue ratios to hover around 19% and 36% respectively. In addition, we expect Lagos State to increase spending in the short term in a bid to improve the welfare of citizens and the overall socio-economic condition of the State. In our view, the State’s overall expenditure profile is satisfactory.

As at 31 December 2018, Lagos State’s total identified assets stood at ₦2.52 trillion (2017: ₦2.21 trillion) consisting of current assets (4%) and non-current assets (96%). LASG’s current assets comprising cash and equivalents (65%), recoverable from non-exchange transactions (32%), inventories (2%) and receivables from exchange transactions (1%) increased markedly to ₦97.7 billion (2017: ₦37.2 billion) due to increase in cash held with treasury banks as well as rise in recoverable receipts7 from non-exchange transactions in the year under review. In 2018, property, plant and equipment accounted for 96% of LASG’s non-current asset, while available-for-sale-investments and other financial assets represented 3% and 1% respectively. As at the same date, the State’s total identifiable liabilities stood at ₦1.09 trillion, representing a 15% increase from the prior year. The rise in LASG’s total liabilities is attributable to the surge in sundry payables in the year under review. The main components of the State’s total liabilities are public debt borrowings (73%), payables and other liabilities (23%) and retirement benefit obligations (3%). As at the same date, the State’s total public debt stock consisted of foreign loans (55%), bond issues (27%) and internal loans (18%).

Based on the State’s debt profile as at end of 2018, LASG’s net debt (total debt less cash, balance in sinking fund accounts and quoted investments) represented circa 110% of 2018 revenue, which is considerably higher than the borrowing limit (50%) set by the Investment and Securities Act 2007 for state governments in Nigeria. Nonetheless, net debt as a percentage of free cash flow of 74% and interest payment as a percentage of revenue of 11% are both in line with our expectations and considered satisfactory.

As at 30 September 2019, Lagos State had an internal loan balance (excluding bonds issued) of ₦109.8 billion and external loan due amounting to ₦462.4 billion. In addition, the State’s Contractor Arrears and Judgment Debts stood at ₦141.5 billion and ₦1.8 billion respectively as at 30 September 2019. As at the same date, Lagos State had four discrete bonds in issue – ₦80 billion 7-Year 14.5% due 20198; ₦87.5 billion 7-Year 13.5% due 2020; ₦47 billion 16.5% 7-Year due 2023; and ₦97.3 billion Series II Bond –(₦46.3 billion 7-Year 16.75% due 2024 (Series II 7 Tranche I), ₦38.7 billion 10-Year 17.25% due 2027 (Series II Tranche II), ₦6.91 billion 6 -Year 15.6% due 2024 12 7 (Series II Tranche III) and ₦5.34 billion 9 Year 15.85% due 2027 (Series II Tranche IV) – with an outstanding 12 principal balance of ₦189.5 billion as at 30 September 2019.

7 The main components are recoverable from tax receipts and other recoverable 8 The final coupon and principal payment on the ₦80 billion bond was paid to the Bondholders on 22 November 2019

11 2019 Municipal Bond Rating Report

Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

FORECAST The State has prepared revenue forecast over a five-year period, which is less than the 10-year Bond tenor. Nonetheless, the revenue projections have been based on the assumption that FGN will maintain a stable sharing formula of the centrally collected revenue and that there will be no significant changes in the Federal Government’s monetary and fiscal policies during the forecast period that will materially impair the State finances, hence the State has estimated no changes to the level of centrally collected revenue when compared to the 2018 levels. In addition, the State has projected income from IGR to remain flat over the five-year forecast period, which in our opinion is overly conservative as we expect LASG to deepen pay-as-you-earn (PAYE) initiatives as well as widen the tax net to include informal taxes and levies over the tenor of the Bond.

Based on the Issuer’s assumptions, cumulative revenue over the five-year period is projected at ₦3.04 trillion (when extrapolated on the same basis for 10 years will amount to ₦6.08 trillion), with internally generated revenue estimated to account for 64% of total cumulative revenue over the period, while centrally collected revenue (including share of statutory allocation, value added tax and other capital receipts) projected to account for 36%.

Agusto & Co. has adopted the State’s revenue assumptions and forecast (over the five-year period) despite the overly conservative projections of IGR. In addition, we have extrapolated these assumptions over a ten-year period covering the Bond tenor, which is subject to annual reviews in line with SEC regulations.

The Issuer did not provide expenditure forecast over the tenor of the Bond but rather estimated debt outflows covering a five-year period. Agusto & Co. has projected the Issuer’s mandatory expenditure consisting of personnel costs, statutory transfers and public debt charges to reflect minimum wage increases as well as our outlook for the economy in the medium term.

Table 4: Agusto & Co.'s Sensitized Revenue & Expense Projections Description Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 TOTAL % ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns Internally Generated Revenue 386,663 386,663 386,663 386,663 386,663 386,663 386,663 386,663 386,663 386,663 3,866,628 64% Centrally Collected Revenue 221,882 221,882 221,882 221,882 221,882 221,882 221,882 221,882 221,882 221,882 2,218,824 36% Total Revenue 608,545 608,545 608,545 608,545 608,545 608,545 608,545 608,545 608,545 608,545 6,085,452 100% Mandatory Expenditure 313,663 332,171 351,574 370,627 357,995 367,849 378,565 375,611 390,469 406,327 3,644,851 60% (excluding debt service) Annual Debt Service Obligation 147,042 162,853 169,655 175,592 120,230 120,230 120,230 120,230 120,230 120,230 1,376,524 23% Discretionary cash flow 147,840 113,521 87,316 62,326 130,320 120,466 109,750 112,704 97,846 81,988 1,064,077 17% Debt Service to Revenue Ratio 24% 27% 28% 29% 20% 20% 20% 20% 20% 20% 23%

Based on the forecast (now extrapolated by Agusto & Co) over the 10-year period, the Issuer’s cumulative revenue will amount to ₦6.1 trillion with IGR accounting for 64% and centrally collected revenue representing 36%. Cumulative mandatory expenditure over the 10-year period is estimated at ₦3.6 trillion and total debt service obligation is projected at ₦1.3 trillion. Consequently, the State’s discretionary cash flow (total revenue less mandatory expenses and debt service obligation) over the tenor of the Bond is estimated at ₦1.06 trillion.

Following our review, Lagos State’s average annual debt service to revenue ratio (over the tenor of the Bond) of 23% is below the 40% threshold as stated in the Exemption Order9. In addition, the State has maintained IGR to revenue ratio in excess of 60% over the last three years – 66% (2018), 72% (2017) and 73% (2016). In our opinion,

9 The Exemption Order is in the process of being extendd for another three years following its expiration on 16 December 2019.

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Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

Lagos State has met the conditions for the exemption of the application of ISA 2007 (section 223) for issuance of Bonds by state governments in Nigeria.

Pursuant to our review, the State’s discretionary cash flow (total revenue less mandatory expenses and debt service obligation) over the tenor of the Bond of ₦1.06 trillion is sufficient to cover total Bond coupon payments 12.6 times and results in a total bond coverage ratio of 5.8 times over the forecast period, which we consider to be good.

Table 5: Agusto & Co.'s Sensitized Cash Flow Projections Description Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 TOTAL ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns ₦'mns Discretionary Cash flow 147,840 113,521 87,316 62,326 130,320 120,466 109,750 112,704 97,846 81,988 1,064,077 Coupon on new Bond (12,250) (12,250) (12,013) (11,010) (9,880) (8,608) (7,175) (5,560) (3,742) (1,695) (84,183) Discr. Cash flow after coupon 135,590 101,271 75,303 51,316 120,440 111,858 102,575 107,144 94,104 80,293 979,894 Principal (7,947) (8,950) (10,080) (11,353) (12,786) (14,400) (16,218) (18,266) (100,000) Bond Interest Cover (Times) 12.07 9.27 7.27 5.66 13.19 13.99 15.30 20.27 26.15 48.37 12.64 Bond Coverage Ratio (Times) 5.78

In line with the Series III Trust Deed, the Issuer undertakes to the Series III Bondholders that the sum of ₦50.8 million will be transferred from the CDSA on a monthly basis from the date of issue for 24 months into an SFA. Thereafter, the monthly sum from the CDSA shall increase to ₦694.4 million over the remaining tenor of the Bond. In addition, a monthly ISPO in the sum of ₦1 billion, duly approved by the Federal Ministry of Finance, will be deducted from the State’s share of statutory allocation from January 2020 and paid into the SFA over 120 months to meet the Bond obligations as and when due.

Agusto & Co. estimates that the amount to be set aside by way of IGR and ISPO contributions (as stated in Series III Trust Deed) into the SFA (excluding investment income and bond-related expenses) over the forecast period will be sufficient to cover the total Bond obligations resulting in an SFA adequacy ratio of 1.02 times, which in our opinion is satisfactory.

Table 6: Sinking Fund Adequacy Schedule Sinking Fund Schedule (Series III Bond) ₦ IGR Contributions 62,882,028,064 ISPO Deductions 120,000,000,000 Total receipts 187,882,028,064 Total coupon payments 84,185,301,223 Total principal repayments 100,000,000,000 Total Bond obligation 184,185,301,223 SFA Adequacy ratio 1.02

13 2019 Municipal Bond Rating Report

Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

OUTLOOK Lagos State Government under the auspices of the current administration of Governor Babajide Sanwo-Olu is poised towards creating favourable social and infrastructural conditions to enable businesses to thrive. To achieve this objective, the State has earmarked infrastructural projects to be partly funded through debt financing (bond issuance) in the short term. The physical and social infrastructure development projects are expected to cover the health, education, waterfront, works & infrastructure, housing, youth & social development, justice, sports, environment and transportation sectors in the State.

The State plans to issue up to ₦100 billion 10-year bond in December 2019 to fund these identified priority projects. The proposed bond will be issued at a coupon rate to be determined through a book-building process and payable semi-annually over the tenor of the Bond, while the principal will be redeemed half-yearly over the tenor of the Bond, following a 2-year moratorium.

Lagos State has pledged that the sum of ₦50.8 million will be transferred from the CDSA on a monthly basis from date of issue for 24 months into an SFA to be managed by a team of ten Trustees. Thereafter, a monthly sum of ₦694.4 million will be transferred from the CDSA over the remaining tenor of the Bond into the same SFA. In addition, a monthly ISPO in the sum of ₦1 billion (duly approved by the Federal Ministry of Finance) will be deducted from the State’s share of statutory allocation from January 2020 and paid into the SFA over 120 months to meet the Bond obligations as and when due.

Overall, Agusto & Co. does not envisage a significant deterioration in the Issuer’s ability to generate IGR or receipt of its share of SA from the Federal Government, which will impair these contributions into the SFA. The amount to be set aside by way of IGR and ISPO contributions (as stated in Series III Trust Deed) into the SFA over the forecast period will be sufficient to cover the total Bond obligations resulting in an SFA adequacy ratio of 1.02 times, which we consider to be satisfactory.

Agusto & Co. notes as a rating concern the State’s continued delay in remitting funds on a monthly basis from its CDSA into the respective sinking fund accounts of existing bonds in issue as a breach of the terms of the Trust Deeds, as this practice may be extended to the proposed Series III Bond, which weakens the overall credit quality of the Issue. Nonetheless, the State has committed towards making monthly remittances from the CDSA into the designated sinking fund account to meet bond obligations as and when due.

14 2019 Municipal Bond Rating Report

Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

Financial Summary

REVENUE & SPENDING IPSAS IPSAS IPSAS IPSAS 2019e 2018 2017 2016 REVENUE ₦'mns % ₦'mns % ₦'mns % ₦'mns % Tax revenue Personal Income Tax 262,512.3 39% 250,011.7 38% 234,089.0 46% 202,552.3 45% Share of VAT collected centrally 110,971.4 17% 99,055.2 15% 80,231.7 16% 75,437.6 17% Share of other revenues collected centrally 52,794.7 8% 59,743.1 9% 43,331.7 9% 48,096.9 11% (Stat. Allocation) Other capital receipts (Paris Club refund, etc) 51,007.0 8% 64,275.2 10% 18,216.6 4% Other taxes 69,599.9 10% 65,046.6 10% 60,139.5 12% 42,108.3 9% 546,885.2 82% 538,131.7 82% 436,008.5 86% 368,195.1 82% Non-tax revenue Asset sales 18,682.09 3% 18,226.43 3% 10,020.35 2% 15,769.76 4% Investment income 4,947.8 1% 4,624.2 1% 10,122.0 2% 8,665.3 2% Others - levies, fines & fees 95,691.2 14% 91,134.4 14% 53,305.0 10% 56,778.6 13% 119,321.1 18% 113,985.0 17% 73,447.3 14% 81,213.7 18%

TOTAL REVENUE 666,206.3 100% 652,116.7 100% 509,455.8 100% 449,408.8 100% Of which internally generated revenue (IGR) is 451,433.2 68% 429,043.3 66% 367,675.9 72% 325,874.3 73% Grants - 906.1 1,541.8 199.7

TOTAL REVENUE & GRANTS 666,206.3 653,022.9 510,997.6 449,608.5

SPENDING Transfers (including pension costs) 41,013.3 6% 38,330.2 6% 38,189.7 5% 31,990.9 5% Interest payments 76,076.3 11% 72,453.6 11% 65,613.2 9% 55,572.7 8% MDA spending 592,646.2 84% 538,858.3 83% 603,953.8 85% 611,296.8 87% TOTAL SPENDING 709,735.8 100% 649,642.2 100% 707,756.7 100% 698,860.4 100%

MDA spending is made up of Personnel costs 129,642.0 18% 101,901.1 16% 92,238.7 13% 87,323.8 12% General and Administrative Expenses 238,351.6 34% 227,001.6 35% 233,544.1 33% 308,744.8 44% Capital expenditure 224,652.5 32% 209,955.6 32% 278,171.0 39% 215,228.2 31% TOTAL MDA SPENDING 592,646.2 84% 538,858.3 83% 603,953.8 85% 611,296.8 87%

BUDGET BALANCE (43,529.5) 3,380.7 (196,759.1) (249,251.9) NOMINAL GDP 30,874,905.1 29,627,583.8 28,343,617.9 27,125,675.1 BUDGET BALANCE AS % OF GDP -0.1% 0.0% -0.7% -0.9%

FINANCING Surplus of prior years 147,183.6 145,726.4 144,283.6 142,855.0 Domestic borrowing (net) 9,678.0 (31,921.0) 15,937.0 13,866.0 External borrowing (net) (4,065.0) (6,547.4) 6,696.8 2,934.3 Other TOTAL FINANCING 152,796.6 107,258.0 166,917.3 159,655.3

Foreign Loans- New Borrowings - - 13,840.0 7,121.3 Repayment during the year 4,065.0 6,547.4 7,143.2 4,187.0 Foreign loan balance 463,337.5 438,249.1 454,414.0 410,926.0 Domestic- New Loans 45,000.0 45,000.0 137,387.0 59,500.0 Loan due (repaid) within the year 35,322.0 76,921.0 121,450.0 45,634.0 Domestic loan balance 441,803.3 359,180.8 390,168.7 368,941.2

15 2019 Municipal Bond Rating Report

Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

KEY RATIOS 2019e 2018 2017 2016 Revenue IGR as % of GDP 1% 1% 1% 1% Tax revenue as % of GDP 2% 2% 2% 1% Total revenue as % of GDP 2% 2% 2% 2% IGR as % of total revenue & grants 68% 66% 72% 72% Tax revenue as % of IGR 58% 58% 64% 62% Growth in tax revenue 2% 23% 18% 12%

Spending Spending as % of GDP 2% 2% 2% 2% Non-discretionary spending* as % of tax revenue 45% 40% 45% 47% Capital expenditure as % of total spending 32% 32% 39% 31% Payroll as % of revenue 19% 16% 18% 19% Other overheads as a % of revenue 36% 35% 46% 69% Budget balance/revenue -7% 1% -39% -55%

Leverage Budget balance (₦'mns) 55,470.70 3,380.68 (196,759.13) (249,251.88) Debt as % of nominal GDP 3% 3% 3% 3% Interest payments as % of total revenue 11% 11% 13% 12% Principal due as % of Revenue 67% 50% 73% 59%

Financial flexibility Discretionary revenue** as % of total revenue 63% 67% 62% 61% Net Debt as % of Free cash flow*** 106% 164% 250% 231% Share of savings in "excess crude account" (₦'mns) Non-discretionary Spending as % of total spending 35% 33% 28% 25% Discretionary cash flow divided by interest payment 5.51 6.07 4.78 4.94

* Non-discretionary spending is made up of statutory transfers, interest payments and personnel costs ** Discretionary revenue is total revenue minus non-discretionary spending *** Free cash flow is defined as revenue minus non-discretionary spending

16 2019 Municipal Bond Rating Report

Appendix 1 Project Description Project Cost Allocation from Part Duration Bond Proceed financing (%) Min. of Works & Rehabilitation, Reconstructuction, Completion of Various Road Projects: Infrastructure Thompson Avenue 1,750,000,000 1,710,750,704.25 98 10 Months Milverton, Ikoyi 750,000,000 733,178,873.25 98 9 Months Adeola Hopewell 1,000,000,000 977,571,831.00 98 8 Months Idowu Taylor 1,000,000,000 977,571,831.00 98 6 Months Reconstruction/Rehabilitation of Agric‐Isawo‐Konu‐Arepo Road 27,533,229,585.53 7,673,938,873.35 28 14 Months Pen Cinema Flyover: reinforced concrete works 24,143,801,789.39 7,820,574,648.00 32 9 Months GRA Ikeja: Sobo Arobiodu 1,500,000,000 1,466,357,746.50 98 8 Months GRA Ikeja: Oba Dosumu 750,000,000 733,178,873.25 98 6 Months Reconstruction/Upgrading of Igbogbo Bola Ahmed Tinubu Igbe Road, Ikorodu 31,120,380,110.92 2,549,642,745.23 8 24 Months Completion of Reconstrcuction of Babs Animashaun, Surulere which includes Drains Construction 1,400,000,000 1,368,600,563.40 98 8 Months Church Street Kosofe 1,000,000,000 977,571,831.00 98 8 Months Reconstruction of Lagos Badagry Dual Carriage Expressway 141,194,264,433.46 2,932,715,493.00 2 24 Months Lagos‐Ogun Boundary Road (PHASE II) in Alimosho L.G.A. 16,362,938,958.78 1,846,204,507.02 11 12 Months Reconstruction/Upgrading of Ijede Road, Ikorodu 5,200,000,000 4,786,894,083.24 92 14 months Substantial completion of Isuti Road, Alimosho 2,000,000,000 1,955,143,662.00 98 16 Months Substantial completion of Mba Cardoso Street, Ajegunle (Ajeromi‐Ifelodun LCDA) 2,000,000,000 1,955,143,662.00 98 18 Months Part construction of Oregun road Network Bridge Link, Ikeja 1,000,000,000 977,571,831.00 98 12 Months Drainage Linning of Ketu Alapere and Network of drains, Koosfe 4,792,767,479 2,433,072,373.43 51 24Months Concrete Linning of Akinola River/Aboru channel Alimosho 5,327,572,507 2,704,568,819.81 51 24Months Linning of System 1 drainage channel Ikeja 8,957,878,324 4,547,511,718.70 51 24Months Erosion control of Fagbohun Community Ifako Ijaye 767,445,612 389,597,602.08 51 12Months Lagos Water Stage Completion of Adiyan Phase II 70MGD Treatment Plant Construction: Corporation Compensation (For re‐acquisition of raw water pipeline Right‐of‐way (ROW) from Ogun State Government, 627,381,203 613,310,190.87 98 12 Months release of Right of way, relocation of existing utility lines and other obstructions. Civil Works (Construction of Intake station at Akute, Completion of Civil Works at Adiyan Headworks, Laying of 11,428,320,359 5,808,564,302.12 51 12 Months Pipework between the Water Treatment Plant (WTP) and Laying of 8km 1200ND (Nominal Diameter) Raw Water Pipeline from Intake Station to Headworks, Sheet pilling and flow channels at Intakes) Electro‐ Mechanical Equipment (Supply of outstanding and installations of electro‐mechanical works for various 8,666,850,422 1,490,696,683.40 17 12 Months treatment units of operation (raw water chamber, flash mixing, flocculation, thickening, overflow pumping pit, sand filtration, carbon filtration, lamellar, 1&2 settler, IPS, weir gate, electromagnetic flowmeter, transmission systems, lamellar packs, submersible pumps to raw water chambers, bins for dried sludge, granular activated carbon, sand filters, installation of screens & strainers at Intakes, clear water line between Intermediate Pumping Stations (IPS) & Clear Water Tank (CWT), CWT cover, fittings installations, etc.) Electrical (Installation of electrical works (1600KVA, 33KVA/0.4KV Transformers of various sizes, electrical 4,509,769,631 977,571,831.00 22 12 Months modullar boards, MT boards, leveler boards, three phases 33KV/50hz, field drive bands, Motor Control Center (MCC) panels for central control, SCADA System, etc) The copyright of this document is reserved by Agusto & Co. Limited. No matter contained herein may be reproduced, duplicated or copied by any means whatsoever without the prior written consent of Agusto & Co. Limited. Action will be taken against companies or individuals who ignore this warning. The information contained in this document has been obtained from published financial statements and other sources which we consider to be reliable but do not guarantee as such. The opinions expressed in this document do not represent investment or other advice and should therefore not be construed as such. The circulation of this document is restricted to whom it has been addressed. Any unauthorized disclosure or use of the information contained herein is prohibited.

Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

Ministry of Channelization/Dredging of two(2) Waterways Routes and Provision of Navigation Buoys And Installation of 6,000,000,000 1,661,872,112.70 28 6 months Waterfront Waterway Furniture‐ a. Ikorodu to Falomo (17km), b. Mile2 to Marina (4.25km) Infrastructure Provision of 1.2Km Shoreline Protection for Lekki Axis (from Alpha Beach to Okun Alfa) using 3 Groynes 7,500,000,000 2,932,715,493.00 39 6 months Development Lagos State Purchase of 7 units 10M 23 Passenger CATAMARAN FERRY (24 Knots) 1,023,750,000 1,023,750,000.00 100 6 months Ferry Services Purchase of 3 units 36PAX CATAMARAN FERRY (42 Knots) 754,400,000 754,400,000.00 100 6 months Company Purchase of 1 unit 80 PAX CATAMARAN FERRY (24 Knots) 310,000,000 310,000,000.00 100 6 months Purchase of 1 unit BARGE 5000 TONS 2016 REF C3947 282,500,000 282,500,000.00 100 6 months Purchase of 1 unit BARGE 7000 TONS 2015 REF C3987 558,000,000 558,000,000.00 100 6 months Purchase of 1 unit 2150 hp Model Bow Tug Boat‐ 13040 202,000,000 202,000,000.00 100 6 months Purchase of 6 units 300Hp YAMAHA Outboard Engines 93,120,000 93,120,000.00 100 1 month Construction of Jetty at Marina, Badagry 480,000,000 457,183,935.82 95 12 Months Construction of Jetty at Ijede, Ikorodu 410,000,000 388,753,907.65 95 12 Months Construction of Jetty at Oke‐Ira, Eti‐Osa 370,000,000 349,651,034.41 95 12 Months Upgrading of Mile 2 Jetty, Amuwo – Odofin 180,000,000 163,912,386.52 91 12 Months Upgrading of Liverpool Jetty, Apapa 120,000,000 105,258,076.66 88 9 Months Upgrading of Ebute‐Ero Jetty, Lagos Island 216,230,000 199,329,813.95 92 9 Months LAMATA Survey and Design from Oyingbo to Agbado 1,000,000,000.00 977,571,831.00 98 3 Months Supervision Consultancy Services 300,000,000.00 293,271,549.30 98 24 Months Land acquisition @ Ikeja Station Area 525,000,000.00 488,785,915.50 93 6 Months Relocation of underground utilities and stakeholder management for the construction of Ikeja Train station 50,000,000.00 48,878,591.55 98 6 Months The construction of a 4‐suspended floor integrated rail station at Ikeja 5,000,000,000.00 4,887,859,155.00 98 24 Months Agege Station (The construction of at‐grade station) 1,650,000,000.00 1,612,993,521.15 98 18 Months Civil/Track Infrastructure works from Oyingbo through Yaba to main line 1,500,000,000.00 1,466,357,746.50 98 6 Months Ministry of Completion of Egan‐Igando Mixed Development Scheme 2,311,051,286.85 1,486,539,749.09 64 12 Months Housing Completion of LagosHOMS Sangotedo II 3,200,346,209.08 2,058,561,779.96 64 3 Months Completion of Odo‐Onosa/ Ayandelu: Mixed Development Scheme 1,611,827,942.80 1,036,777,642.84 64 6 Months Ministry of Construction and Equipping of Psychiatry Hospital, Majidun 1,500,000,000.00 1,026,450,422.55 68 30 months Health Construction of General Hospital Ojo and Spinal Neurology Centre 1,500,000,000.00 1,026,450,422.55 68 30 months Procurement and Installation of Second Tranche of Medical Equipment For all Secondary and Tertiary Hospitals 2,500,000,000.00 1,710,750,704.25 68 12 months in the state. Rehabilitation of Four (4) Secondary Health Facility 1,953,687,838.00 1,336,909,137.90 68 12 months Completion of Psychiatric Ward in LASUTH 85,000,000.00 58,165,523.94 68 12 months Equipping and Furnishing of MCC Badagry 350,000,000.00 239,505,098.60 68 4 months Equipping and Furnishing of MCC Epe 350,000,000.00 239,505,098.60 68 4 months Procurement and Installation of Two(2) Modern Incinerators at Mainland and Ikorodu General Hospital 75,000,000.00 51,322,521.13 68 6 months Lagos State Procurement of 100 Compactor Trucks 4,000,000,000 3,910,287,324.00 98 12 Months Waste Construction of Material Recovery Facility inclusive of Three (3) Transfer Loading Stations at Olushosun, Solous 1,000,000,000 977,571,831.00 98 12 Months Management and Abule Egba Landfills Authority Landfill Rehabilitation at Olushosun, Solous and Abule Egba Landfills 1,000,000,000 977,571,831.00 98 12 Months

18 2019 Municipal Bond Rating Report

Lagos State Government’s ₦100 Billion Series III 12.25% Fixed Rate Bond Issuance Due 2030

Ministry of Badagry Grammar School ‐ Construction of Watch Tower, Installation of Flood Lights, security doors and panic 108,796,618.10 106,356,509.16 98 11 Months Education alarm systems, repair/height increase of security fence and clearing of bush Epe Grammar School ‐ Construction of Watch Tower, Installation of Flood Lights, security doors and panic alarm 103,769,523.49 101,442,163.08 98 10 Months systems, repair/height increase of security fence and clearing of bush L.S. Girls Model Colleger, Agunfoye ‐ Construction of Watch Tower, Installation of Flood Lights, security doors 24,312,388.43 23,767,106.07 98 10 Months and panic alarm systems, repair/height increase of security fence and clearing of bush Lagos State Civil Service Model College, Igbogbo, Ikorodu LGA ‐ Construction of Watch Tower, Installation of 62,045,371.89 60,653,807.80 98 10 Months Flood Lights, security doors and panic alarm systems, repair/height increase of security fence and clearing of bush Oriwu College, Ikorodu, LGA ‐ Construction of Watch Tower, Installation of Flood Lights, security doors and panic 79,827,650.49 78,037,262.45 98 11 Months alarm systems, repair/height increase of security fence and clearing of bush Lagos State Model College, Ojo LGA ‐ Construction of Watch Tower, Installation of Flood Lights, security doors 61,596,588.97 60,215,090.26 98 11 Months and panic alarm systems, repair/height increase of security fence and clearing of bush Repair/increase in height of perimeter fence to 2.8m and introduction of concertina fence wire 2400mtrs. Bush 24,121,507.15 23,580,505.91 98 11 Months clearing Lagos State Model Junior College, Meiran, Alimoso LGA 141,654,519.42 138,477,467.92 98 11 Months Construction of hostel block(raft fdn):‐ Badagry Grammar School, Badagry LGA 149,566,115.00 146,211,620.90 98 9 Months Construction of hostel block(pad fdn):‐ Lagos State Model College Agbowa Ikosi, Epe LGA 141,654,519.42 138,477,467.92 98 10 Months Construction of hostel block(raft fdn):‐ Lagos State Model College, Badore, Eti‐Osa LGA 1 49,566,115.00 146,211,620.90 98 10 Months Construction of hostel block(pad fdn):‐ LS Girls Model College, agunfoye, ikorodu lga 141,654,519.42 138,477,467.92 98 10 Months Construction of hostel block(pad fdn):‐ LS Model College, Igbokuta, Ikorodu LGA 1 41,654,519.42 138,477,467.92 98 11 Months Construction of hostel block(pad fdn):‐ Eva Adelaja Memorial Girls Grammar School, Somolu LGA 141,654,519.42 138,477,467.92 98 15 months Construction of 18 classroom block(raft fdn):‐ Araromi Ilogbo Junior Secondary School 180,055,022.65 176,016,718.17 98 11 Months Construction of 18 classroom block(raft fdn):‐ Muslim Senior College, Oworo, Kosofe LGA 180,055,022.65 176,016,718.17 98 11 Months Construction of 18 classroom block(pad fdn):‐ Alagbado Junior Grammar School, Alimoso LGA 1 68,015,479.08 164,247,199.52 98 10 Months Total 97,757,183,100.00 Issue cost 2,242,816,900.00 Total 100,000,000,000.00

19 2019 Municipal Bond Rating Report

RATING DEFINITIONS Aaa Highest quality debt issue with minimal credit risk; strongest capacity to pay returns and principal on local currency debt in a timely manner.

Aa High quality debt issue with very low credit risk; very strong capacity to pay returns and principal on local currency debt in a timely manner.

A Good quality debt issue with low to moderate credit risk; strong capacity to pay returns and principal on local currency debt in a timely manner.

Bbb Satisfactory quality with moderate credit risk; adequate capacity to pay returns and principal on local currency debt in a timely manner.

Bb Below average quality with moderate to high credit risk; speculative capacity to pay returns and principal on local currency debt in a timely manner.

B Weak quality with high credit risk; speculative capacity to pay returns and principal on local currency debt in a timely manner.

C Very weak capacity to pay returns and principal. Debt instrument with very high credit risk.

D In default.

Rating Category Modifiers A "+" (plus) or "-" (minus) sign may be assigned to ratings from ‘Aa’ to ‘C’ to reflect comparative position within the rating category. Therefore, a rating with + (plus) attached to it is a notch higher than a rating without the + (plus) sign and two notches higher than a rating with the - (minus) sign.

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21 2019 Municipal Bond Rating Report

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