Lagos State N125bn Bonds Issuance Gets Indicative Rating
GCR Ratings has accorded an indicative long term credit rating of A+ (NG) (IR) to Lagos State Government’s proposed N125 billion Series IV Senior Unsecured Fixed Rate Bonds, with a positive outlook.
Indicative rating is accorded based on limited information and a limited rating process by credit rating agencies, a slew of credit rating analysts told MarketForces Africa.
Lagos State Government has recently obtained the requisite approvals to issue up to N125 billion Series IV Bonds, from the Nigerian capital market, under the N500 billion bond programme registered in 2016.
The Series IV Bonds shall constitute direct unconditional, unsubordinated, senior and unsecured obligations of the Issuer and rank pari-passu in all respects with all other Bonds issued by the Issuer under the programme, said GCR in its rating note.
Lagos intends to use the proceeds of its series IV bonds of a ten-year tenor maturing 2031 to fund various socio-economic infrastructural projects and to refinance some of the high-priced existing debt.
Lagos is ‘A’ category ranking and the most developed State in Nigeria. The cosmopolitan sun-national remains Nigeria’s economic and commercial hub despite being the smallest state in terms of geographical size.
Recalled that GCR affirmed the issuer rating of A+ (NG) with a positive outlook in August 2021. It said the rating was underpinned by Lagos State’s robust internal economy which has aided sustained growth in Internally Generated Revenue.
Albeit, the rating strength is counterbalanced by the substantial rise in debt, negatively impacting its credit protection metrics. However, there has been timely payment of the existing obligations of the State as and when due.
The bond’s coupon and principal repayment obligations are expected to be serviced through monthly transfers into the Sinking Fund Account from the Consolidated Debt Service Account and Irrevocable Standing Payment Order (approved by the Federal Ministry of Finance, Budget and Planning).
Monthly funding of N495.6 million from consolidated debt service accounts and N1 billion from the payment will commence immediately upon the issue of the Bonds and subsist for 24 months of the principal moratorium, according to GCR.
Thereafter, monthly funding from the consolidated debt service account will increase to N1.2 billion and will augment the irrevocable standing payment order for servicing both coupon and principal repayments on a semi-annual basis.
Based on GCR’s analysis of the expected inflows -as reflected in the draft Series 3 pricing supplement- both inflows will only provide 1x coverage of semi-annual interest payments during the moratorium period and 1x cumulative debt service when the 24-month moratorium lapses.
As such, the rating firm said there is no additional credit enhancement offered by the contemplated inflows. Accordingly, the long-term rating for the Series IV Bonds is equivalent to the Issuer’s long term senior unsecured rating.
“The final rating is contingent on the proper execution of the transaction documents in favour of the Bondholders. A change in the rating assigned to the Issuer will directly impact the rating of the Series IV Bonds”.
The positive outlook reflects GCR’s expectation that Lagos State will continue to report strong growth in IGR, despite the setbacks occasioned by the COVID-19 pandemic.
This supports GCR’s expectation of an improved financial profile over the outlook period if gearing does not increase further, the report stated. # Lagos State N125bn Bonds Issuance Gets Indicative Rating
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