Ondo State N27bn Bonds Rating Has Negative Outlook, Says GCR
Ondo State government N27 billion bonds could face liquidity pressures on the expectation that the weak federal transfer and its bloated irrevocable standing payment order (ISPO) deductions will continue to constrain operating performance, according to rating note issues by GCR Ratings.
However, the emerging market-focused firm, GCR Ratings, affirms the national scale long-term Issue rating of A (NG) accorded to the N27 billion restructured Fixed Rate Bond of the Ondo Government, but the outlook has been revised from stable to negative.
According to the rating note, the Ondo State Government of Nigeria raised N27 billion under its N50 billion fixed rate Bond issuance programme in 2011, with the proceeds utilised to finance socio-economic projects.
It is noted that the bonds are fully backed by an irrevocable standing payment order issued by the Federal Ministry of Finance as a first-line charge upon and payable out of the statutory allocation of the State.
GCR said due to the financial hardship occasioned by the impact of the economic recession in 2016-17, the state obtained approval to restructure the N27 billion bonds with the maturity date extended by 3-years to February 2022.
This was geared towards freeing up funds to meet recurrent expenditure needs of the State, the emerging market-focused rating agency added.
It said that subsequently, the State secured the approval of the Federal Ministry of Finance for the extension of the monthly ISPO deductions from the State’s statutory allocations, up to the new maturity date.
Accordingly, the monthly ISPO deductions from the State’s statutory receipts was reduced to N308 million from N726million prior to restructuring, being the sum equal to the principal, interest, and all ancillary fees payable by the Issuer into the Sinking Fund Account.
“The account is held and managed by the Trustees, as set out in the Supplementary Trust Deed”.
The rating note hinted that GCR has reviewed the Trustees bond performance reports in respect of the bonds and no breach has been flagged so far.
It then affirmed Ondo national scale long term issuer rating of BBB (NG) in November 2021, with the outlook changed to negative due to liquidity constraints. Consequently, a three-notch uplift has been applied to the bonds, starting from the national scale long term Issuer rating of Ondo State.
Thus, a national scale long term Issue rating of A (NG) has been assigned to the bonds. GCR explains that the negative outlook reflects GCR’s view that the weak federal transfer to Ondo State and its bloated ISPO deductions will continue to constrain operating performance.
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#Ondo State N27bn Bonds Rating Has Negative Outlook, Says GCR
