- Lagos Records Stable Economic Rating
A global credit rating agency, Fitch Ratings, says the positive economic ratings of Lagos State remains despite the default of contract services payment by a Special Purpose Vehicle, Municipality Waste Management Contractors Limited.
The SPV, according to Fitch, is a private consortium led by Visionscape Sanitation Solutions, a company mandated to manage Lagos’ waste collection and disposal.
It stated that in early March, the SPV was reported to have missed the semi-annual principal and coupon payments for about N800m on the N4.85bn tranche under MWMCL’s N50bn medium-term note programme.
The bond was issued by MWMCL reportedly to raise funds to purchase recycling trucks and equipment, linking debt service to the proceeds coming from Lagos for the implementation of the waste recycling contract.
Fitch said some market participants had deemed MWMCL’s default to imply a default on the part of the state, given the state’s irrevocable standing payment order where a stream of its own Internally Generated Revenue was remitted to the SPV account for debt servicing.
In the report, dated March 28, 2019, Fitch said the state’s B+/(AA+(ngn)/ ratings remained stable and unaffected, adding that the ISPO, and similar arrangements in other countries, was a mechanism enhancing the predictability of payment flows from an administration, potentially enabling it to address liquidity stress by prioritising the payment of certain liabilities.
The report said, “The ISPO is seen as a commitment to set aside resources for debt service, making it a risk-mitigating factor in case of liquidity stress by an administration rather than a credit enhancement.
“Fitch does not rate the defaulted bond and believes that it would not have been able to rate the state’s commitment towards Visionscape — underpinning the bond debt servicing — under its Public-Sector Counterparty Obligations in PPP Transactions Criteria. Fitch does not rate commercial liabilities; those arising from service provision, such as waste fees/utility bills.”
