5 lgucc - lydia orial
DESCRIPTION
Taken from the "National Conference on Environment & Natural Resources (ENR) Financing" Sept. 23-24, 2009, Crowne Plaza Hotel, Quezon City, PhilippinesMore at http://ecosolutionsmanila.blogspot.com/TRANSCRIPT
LGU Investment Guarantees, Municipal Bonds and Creditworthiness: Challenges and Opportunities
by
LYDIA N. ORIALPresident/CEO
LGU Guarantee Corporation
WHO WE ARE
2National Conference on ENR Financing
RATIONALE FOR ESTABLISHING LGUGC
3National Conference on ENR Financing
25
11.08
0
5
10
15
20
25
Pesos (billion)
Potential Demand Supply
LGUs hesitant to borrow from the private financial market
PFIs do not have bank relationship with LGUs
NG resources insufficient1997 Data
WHAT WE DO
4National Conference on ENR Financing
CREDIT GUARANTEE
RELATIONSHIP MANAGEMENT WITH
FINANCIAL INSTITUTIONS
CREDIT RATING
COLLABORATION WITH NATIONALGOVERNMENT
& DONOR AGENCIES
GUARANTEE PROGRAM
MANAGEMENT
GUARANTEE SYSTEM
5National Conference on ENR Financing
Financial Institutions
• Pays loans / bond amortization
• Calls on guarantee upon default
AAADue Diligence / Credit Rating
• Provides loans, or• Underwrites bond issues
• Guarantees FIs against default• Pays FIs in case of default according to original schedule
40% co-guarantee
LGUs/WDs/ECs/RETP/s
LGUGC-CLOSED DEALS (as of August 2009)
Accounts(amounts in P million)
Bond Amount
Guarantee d Amount
Outstanding Guarantee
1. Urdaneta City P 25.00 P25.00 P 0.00
2. Province of Aklan 40.00 40.00 0.00
3. Puerto Princesa City 320.00 320.00 0.00
4. Caloocan City 620.00 620.00 0.00
5. Tagaytay City 220.00 220.00 0.00
6. Iloilo City 130.00 130.00 0.00
7. Municipality of Daraga, Albay 75.00 75.00 0.00
8. Municipality of Bayambang, Pangasinan 42.00 42.00 0.00
9. Province of Leyte 205.00 205.00 0.00
10. Municipality of San Juan, Metro Manila 390.00 390.00 0.00
11. Municipality of Carmona, Cavite 150.00 150.00 60.00
12. Pasay City, Metro Manila 500.00 500.00 275.00
13. Municipality of Imus, Cavite 47.00 47.00 18.80
12. Municipality of Baliwag, Bulacan 50.00 50.00 39.00
Total Bond Issuances P 2,814.00 P 2,814.00 P 392.80
6National Conference on ENR Financing
LGUGC-CLOSED DEALS (as of August 2009)
7National Conference on ENR Financing
Accounts(amounts in P million)
Loan Amount
Guarantee d Amount
Outstanding Guarantee
1. Agoo, La Union P110.00 P93.50 P93.50
2. Imus, Cavite 23.00 19.55 19.55
Total LGU Loan Releases P133.00 P113.05 P 113.05
1. Metro Iloilo WD P38.13 P32.41 P23.23
2. Calamba WD 40.00 34.00 24.08
3. Legazpi City WD 105.00 105.00 87.50
4. Silang WD 189.00 160.65 119.00
5. Laguna WD 99.49 84.56 78.30
6. City of San Fernando WD 226.00 192.10 192.10
7. Indang WD 15.00 12.75 12.75
8. Cabanatuan City WD 250.00 212.50 142.54
9. Mabalacat WD 135.00 114.75 34.00
10. Norzagaray WD 70.00 59.50 29.75
Total WD Loan Releases P1,167.62 P1,008.22 P743.25
TOTAL P4,114.62 P3,935.27 P1,249.10
National Conference on ENR Financing8
LGU INVESTMENTS: Challenges and Opportunities
CHALLENGES OPPORTUNITIES
Limited reach Anchored on PFI/FA network Partnered with key LGU financing
institutions: DOF-BLGF, DILG, BSP, donor agencies
Aggressive marketing stance of GFIs using ODA funds
Low interest rates and no other fees such as origination and commitment fees
50% risk weight on LGUGC guaranteed bonds
Increasing PFI appetite on LGU financing
Technical evaluation Technical assistance Bond pooling (lower class, small
amounts) Prompt payment guarantee fee
9
MUNICIPALBONDS
“any interest-bearing or discounted government or corporate security that obligates the issuer to pay the bondholder a specified sum of money, usually at specific intervals, and to repay the principal amount of the loan at maturity.
Bondholders have an IOU from the issuer but no corporate ownership privileges, as stockholders do.”
WHAT IS A BOND
1. Ensures transparency in LGU project implementation
2. Allows LGU constituent involvement through bond purchase
3. Encourages ring-fencing of an LGU enterprise making it possible for the LGU to determine whether or not it is earning from the project
11
ADVANTAGES OF BOND FLOTATION
National Conference on ENR Financing
12
ADVANTAGES OF BOND FLOTATION
National Conference on ENR Financing
LOANS BONDS
Reference Rate (1-month PDST-F as of 9/14/09) 3.9908%
Lending Rates (Actual)* 8.6325%
Add-on Rate 2.0000%
Trustee Fee 0.5000%
Guarantee Fee 1.0000%
Total Annual Fees 8.6325% 7.4908%
Commitment Fee 0.5000%
Handling Fee 0.7500%
Underwriting Fee 1.0000%
Total Up-front Fees 1.2500% 1.000%
Total Annual Fees 8.6325% 7.4908%
Total Up-front Fees (over 10 years) 0.1250% 0.1000%
TOTAL FEES 8.7575% 7.5908%
INTEREST RATE DIFFERENTIALLoans vs. Bonds
* Average lending rates of LBP (9.2150%) and DBP (8.0500) and PDST-F as of September 14, 2009
BOND ISSUANCE PROCESS AND TIMETABLE
Timetable (in months) 1st 2nd 3rd 4th 5th 6th
1. Project development, feasibility study preparation, and hiring of a financial advisor, BLGF and DAR/ DENR Certification
The bond issuance process shall not include this period but will commence
after the completion of this activity
2. Sanggunian ordinance approving the project
3. Selection and appointment of a Bond Issuance Team
4. Designing the features of the municipal bond
5. Securing the guarantee for the municipal bonds
6. Sanggunian ordinance approving final bond terms
7. Sanggunian Panlalawigan’s validation of the ordinance of the municipal bond issuance by a component city/municipality
8. BSP favorable opinion
9. Preparation of the Official Statement, Primer and bond documents
10. Municipal bond offering and issuance
11. Debt servicing and payment of the principal This period shall cover the date of issue up to the maturity date
National Conference on ENR Financing
PROJECT MONITORING BOARD
GUARANTORGUARANTOR(LGUGC)(LGUGC)
GUARANTORGUARANTOR(LGUGC)(LGUGC)
TRUSTEETRUSTEETRUSTEETRUSTEE UNDERWRITERUNDERWRITERUNDERWRITERUNDERWRITERTRUSTORTRUSTOR(LGU)(LGU)
TRUSTORTRUSTOR(LGU)(LGU)
Monitors project status (Works Engineer to be hired) Monitors financial status Identifies potential problems, recommends remedies,
and monitors compliance
National Conference on ENR Financing15
MUNICIPAL BONDS: Challenges and Opportunities
CHALLENGES OPPORTUNITIES
Aggressive marketing stance of GFIs for LGU loans with longer tenors at fixed rates
NGA issuance of pertinent permits
Agri -Agra Alternative Compliance
50% risk weight on LGUGC guaranteed bonds
Eligibility of LGUGC-guaranteed bonds as reserves for insurance companies
Ability of PFIs to extend loan/bond tenor
Competitive rates; variable with one-time option to fix
Fast processing
Market liquidity; increase in bond investors
Community investment participation
16
CREDITWORTHINESS
A creditor’s measure of an individual’s or company’s ability to meet debt obligations
WHAT IS CREDITWORTHINESS
CREDIT RATING
18National Conference on ENR Financing
LGUGC’s internal LGU credit rating system aims to promote LGUs as viable borrowers for private financial institutions and issuers of debt instruments, to facilitate their access to capital markets through a structured information base on their overall creditworthiness
Factors considered:• Political Risks• Economic Risks• Operating and Management Risks• Financial Risks
CREDIT RATING
19National Conference on ENR Financing
Tendency for Efficient Debt Repayment
Development Capacity and Socio-Economic Endowment
Operating Performance
Financial Condition
ManagementShort-term Indicators
Long-termIndicators
CREDITRATING
CREDITSCREENING
CREDIT SCREENING AND RATING METHODOLOGY
Credit Screening Credit Rating
Risk of Unilateral
Restriction of Debt
Payments
1
2
Development Risk
Economic & Political Endowment Risk
D
C
B
A
TENDENCY FOR DEBT
PAYMENT
DEVELOPMENT AND ENDOWMENT
Operating
Financial
1.D
1.C
1.B
1.A
2.D
2.C
2.B
2.AManagement
A
Aa
Aaa
D
C
Ba
OPERATING & FINANCIAL
CONDITION RISK
MANAGEMENT
Aaa - highest credit standing
Aa - high credit standing
A - good credit standing
Ba - average credit standing
B - below-average credit standing
C - poor credit standing
CREDIT RATINGS
RATED LGUs
LGU Rating LGU Rating LGU Rating
1. San Juan, MM Aa 16. Alfonso Lista, Ifugao Ba 31. Puerto Princesa City Ba
2. Agoo, La Union A 17. Antipolo City Ba 32. Rosario, La Union Ba
3. Aklan A 18. Bayambang, Pangasinan Ba 33. San Fernando City, Pampanga Ba
4. Baguio City A 19. Binangonan, Rizal Ba 34. Santiago City, Isabela Ba
5. Baliwag, Bulacan A 20. Butuan City Ba 35. Surigao City Ba
6. Carmona, Cavite A 21. Calasiao, Pangasinan Ba 36. Urdaneta City Ba
7. Cagayan A 22. Caloocan City Ba 37. Aliaga, Nueva Ecija B
8. Imus, Cavite A 23. Daraga, Albay Ba 38. Calbayog City, Samar B
9. Lucena City A 24. Iloilo City Ba 39. Palayan City, Nueva Ecija B
10. Mariveles, Bataan A 25. Iriga City Ba 40. San Vicente, Palawan B
11. Tabaco City, Albay A 26. Kawit, Cavite Ba
12. Tagaytay City A 27. Leyte Ba
13. Taguig City A 28. Masbate City Ba
14. Taytay, Rizal A 29. Orani, Bataan Ba
15. Zamboanga del Norte A 30. Pasay City Ba
LGU DEBT MARKET (as of March 2009)
FIApproved Amount*
% Share
Availment/Disbursed*
DefaultRate
A. GFIs
DBP 17,507 16% 12,610 < 1%
LBP 74,157 68% 60,508 < 1 %
Sub-total 91,664 85% 73,118
B. PFIs
LGUGC 2,947 3% 2,926 0
PNB 9,926 9% 8,242 0.04 %
PVB 1,411 1% 1,238 0
Others 2,334 2% 2,334
Sub-total 16,618 15% 14,740
TOTAL 108,282 100% 87,857
* in Million Pesos
23National Conference on ENR Financing
National Conference on ENR Financing24
CREDITWORTHINESS: Challenges and Opportunities
CHALLENGES OPPORTUNITIES
Lacked of published LGU credit rating system
High rating cost LGU compliance with data
requirements
Project completion
Political risk perception
LGUGC’s internal LGU Credit Screening and Rating System
Project monitoring board, works engineer and trust fund
Increasing LGU debt market portfolio with almost zero default
National Conference on ENR Financing25
ENR FINANCING
CHALLENGES OPPORTUNITIES
Unconventional LGU projects
Substantial funding requirement
Feasibility study preparation
Political will / dynamism of local officials
Technical assistance
Adopt DOF Policy Framework for LGU Financing
Availability of affordable financing modes from both the public and private sectors (with project preparation component)
Emerging dynamic local chief executives Showcase successful projects
26
Thank You
LGU Guarantee CorporationTel. No.: (02) 751-8764 to 68Fax No.: (02) 888-4217Email: [email protected]: www.lgugc.com