Rating Release

Agusto & Co. hereby affirms the “Bbb+” rating assigned to the Gombe State Government’s ₦12.5 Billion Series 1 Bond

The rating expires on 30 September 2023.

Agusto & Co. hereby affirms the “Bbb+” rating assigned to the Gombe State Government’s (“Gombe State” or “the State”) ₦12,554,665,715.00 (₦12.5 Billion) Seven-Year 16% Fixed Rate Series 1 Bond Due 2023 (formerly ₦20 billion 15.5% Fixed Rate Bond Due 2019) (“the Issue” or “the Bond”). The assigned rating reflects the satisfactory quality debt issue as well as the State’s adequate capacity to pay returns and principal on the Bond as and when due mainly supported by the monthly deduction of ₦260.4 million from the Gombe State’s share of statutory allocation (SA) as an irrevocable standing payment order (ISPO) approved by the Federal Ministry of Finance. In October 2016, the erstwhile Gombe State’s ₦20 billion 15.5% Fixed Rate Bond Due 2019 was restructured to ease the cash flow pressure on the State’s finances due to the dwindling centrally distributed revenue. The key terms of the restructuring included the extension of the tenor of the outstanding principal balance of ₦12.5 billion by four years, an increase in the existing coupon rate by 50 basis points to 16% per annum, payment of a one-off restructuring fee of 0.5% to Bondholders as compensation for the restructuring of the Series 1 Bond and a reduction in the monthly ISPO amount to ₦260.4 million (previously ₦398.5 million). The Bond’s coupon and principal obligations continue to be paid on a semi-annual basis in line with the Trust Deed.

Based on the Joint Trustees’ report as at 30 September 2022, the total ISPO inflow sinto the SFA as well as earned investment income amounted to ₦41.8 billion. This was sufficient to cover total Bond obligations (coupon & principal) of ₦36.5 billion,a one-off restructuring fee of ₦373.5 million, refund of excess ISPO deductions to Gombe State of ₦3.43 billion and settlement of Bond-related expenses of ₦849.8million, leaving a balance of ₦646.4 million as at the same date. Going forward, Agusto & Co. estimates that the amount in the SFA as at 30 September 2022 plus the remaining 12 monthly ISPO deductions over the Bond tenor will be adequate to cover the outstanding Bond obligations 1.23 times, which we consider to be satisfactory. Therefore, we attach a stable outlook to Gombe State Government’s ₦12.5 Billion Seven-Year 16% Fixed Rate Series 1 Bond Due 2023.

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.