Rating Release

Agusto & Co. affirms the “Bbb+” rating assigned to Kogi State Government’s ₦5 Billion Bond

The rating expires on 31 December 2023.

Agusto & Co. affirms the “Bbb+” rating assigned to Kogi State Government’s ₦5 Billion 15% Fixed Rate Infrastructure Development Series 1 Bond (“the Issue” or “the Bond”) Due 2023. The rating affirmation reflects the continuous fulfilment of the Irrevocable Standing Payment Order (ISPO) authorising a monthly deduction of ₦70.59 million from Kogi State Government’s (“Kogi State”, “KOSG” or “the Issuer”) share of statutory allocation into a sinking fund account (SFA) towards meeting the Bond obligations as and when due. The Series 1 Bond, which was originally issued in December 2013 at a fixed coupon rate of 15%, was restructured in 2017 following approval from the Securities and Exchange Commission (SEC). As part of the restructuring, the tenor of the Bond was extended by another three years to 2023, while the principal repayment structure was changed from a bullet to amortising. However, the Bond’s coupon rate was maintained at 15% payable half-yearly alongside a portion of the principal until maturity

. The Bond was restructured to ease the strain on the State’s cash flow and enhance its capacity to undertake capital projects. Kogi State had paid a total of ₦8.84 billion to the Bondholders since the inception of the Series 1 Bond and up until 30 September 2022, with the outstanding bond obligation being ₦2.05 billion. Based on the airtight nature of the ISPO, which guarantees the uninterrupted accumulation of funds towards meeting payment obligations to the Bondholders, we remain optimistic that Kogi State will redeem the Series 1 Bond upon maturity on 31 December 2023. Therefore, we estimate that the credit balance in the SFA plus the future ISPO inflows will be sufficient to cover outstanding bond obligations (coupon and principal) 1.3 times. Overall, we do not expect the prevalence of crude oil theft in the Niger Delta region, which has continued to threaten the country’s oil revenues and the potential risk of a change of government after next year’s elections to have any negative impact on the State capacity to redeem the Series 1 Bond.

The opinions expressed in this rating release do not represent investment or other advice and should therefore not be construed as such. Visit www.agusto.com for further information.