LGUGC gets double-A credit rating
MANILA, Philippines—LGU Guarantee Corp., a private guarantor of local government unit debt and development financing, obtained a double-A credit rating from local credit watcher Philippine Rating Services Corp.
A PRS Aa+-rated company is deemed to have a “strong capacity to meet its financial commitments relative to that of other Philippine corporations” and differs from the highest (triple A) rated corporation only to a small degree.
Philratings said in a statement that the rating assigned to LGUGC reflected primarily the following considerations:
- the strong institutional linkages of the company;
- experience and track record of key members of the board and of management;
- maintenance of good asset quality, with no claim on its guarantee since it started operations in 1998;
- strong capital cushion;
- ample reserves to cover probable losses;
- multiple layers of financial flexibility which enhance its liquidity; and
- increasing profitability, with guarantee fees and program management fees alone now being able to cover all operating expenses.
Philratings said the rating had likewise taken into account the significant competitive challenges in terms of expanding and developing new markets on a sustained basis and “political risk” when dealing with local government units and/or government regulatory agencies. It also factored in what it described as “fairly untested resilience during a period of severe domestic economic stress given the company’s relatively short 13-year history.”
Incorporated in 1998, LGUGC is the first private corporation to go into the guarantee business in the Philippines. It was also the first to introduce a guarantee mechanism for LGU borrowings in the country.
Acting as the private sector link in public-private partnerships for local development financing, LGUGC mobilizes the resources of private sector financial institutions for funding local development projects.
The company has been considered an authority in LGU debt and development financing as evidenced by its partnerships and citations with various institutions such as the United States Agency for International Development and the Bangko Sentral ng Pilipinas, Philratings said.
“LGUGC’s credibility and operations are supported by the experience and track record of key members of the board and of management in banking and guarantee operations. This manifests itself in the prudent management of the company’s guarantee and investment portfolio,” Philratings said.
“Since it began operations in 1998, it has experienced no call on its own guarantee portfolio. Also, the company’s investments are mostly in government securities and highly rated bonds,” it said.
For the first 10 months of 2011, LGUGC reported total revenues of P55.68 million and a net income of P31.05 million. Operating income was able to cover 166 percent of total expenses while net profit margin stood at 56 percent.
The company holds an investment portfolio amounting to P537.76 million and contingent liabilities (inclusive of interest) of P2.4 billion, resulting in a leverage of 4.74x in relation to total equity.
