Transcript Document
WHO WE ARE
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DBP BPI MBTC PVB ADB
BOARD OF DIRECTORS
Reynaldo G. David Armando O. Samia Edgardo F. Garcia Rolando S.C. Geronimo Aurelio R. Montinola III Antonio S. Abacan, Jr. Ricardo A. Balbido, Jr. Stephen Edwards C. Genalin C. Uy
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WHAT WE DO
CREDIT GUARANTEE GUARANTEE PROGRAM MANAGEMENT CREDIT RATING RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS COLLABORATION WITH NATIONALGOVERNMENT
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GUARANTEE SYSTEM
• •
Guarantees FIs against LGU default Pays FIs in case of default according to original schedule Due Diligence / Credit Rating AAA
• •
Provides loans Underwrites bond issues
LGUs/WDs
Financial Institutions
•
Pays loans / bond amortization
•
Calls on guarantee if LGU defaults
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WHAT WE’VE DONE
Borrower Urdaneta City Province of Aklan Puerto Princesa City Caloocan City Tagaytay City Iloilo City Municipality of Daraga Amount (PhP) 25 MM 40 MM 320 MM 185 MM 225 MM 210 MM 220 MM 130 MM 75 MM Project Slaughterhouse Jetty Port and Terminal Building Socialized Housing Public Market Commercial Complex with Toll Parking General Hospital Convention Center with Lodging Facility Housing Public Market
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WHAT WE’VE DONE
Borrower Municipality of Bayambang Province of Leyte Municipality of San Juan Municipality of Carmona Pasay City Municipality of Imus Metro Iloilo Water District Municipality of Baliwag Amount (PhP) 42 MM 205 MM 390 MM 150 MM 500 MM 47 MM 46 MM 50 MM Project Public Market Academic Center Gymnasium, Commercial Area and Toll Parking Housing Public Market and Commercial Center Slaughterhouse Water System Rehabilitation Integrated Solid Waste Management
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CREDIT GUARANTEE
WHAT WE DO
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LEGAL BASIS FOR BOND ISSUANCE
Section 295 of Republic Act 7160 ,
the Local Government Code of 1991, states that local government units (LGUs) shall have the power to create indebtedness and enter into credit and other financial transactions.
A. Power to Create Indebtedness
LGUs are authorized to source funds to finance identified development projects.
Section 296. (a)
“It shall be the basic policy that any local government unit may create indebtedness, and avail of credit facilities to finance local infrastructure and other socio-economic development projects in accordance with the approved local development plan and public investment program.” 9
LEGAL BASIS FOR BOND ISSUANCE
LGUs are authorized to secure loans, credits and other forms of indebtedness from banks and lending institution for establishment, development or expansion of identified projects.
the
Section 297 (a).
“A local government unit may contract loans, credits, and other forms of indebtedness with any government or domestic private bank and other lending institutions to finance the construction, installation, improvement, expansion, operation or maintenance of public facilities, infrastructure facilities, housing projects, the acquisition of real property and the implementation of other capital investment projects, subject to such terms and conditions as maybe agreed upon by the local government unit and the lender.” 10
LEGAL BASIS FOR BOND ISSUANCE
B. Bonds and Other Long-Term Liabilities
LGUs are authorized to issue bonds and other long-term securities as an alternative financing source to fund income-generating projects.
Section 299.
“Subject to the rules and regulations of the Central Bank and the Securities and Exchange Commission, provinces, cities and municipalities are hereby authorized to issue bonds, debentures, securities, collateral, notes and other obligations to finance self-liquidating, income-producing development or livelihood projects pursuant to the priorities established in the approved local development plan or the public investment program.” 11
LEGAL BASIS FOR BOND ISSUANCE
C. Debt Service
LGU budgets must be capable to support debt service repayments and other requirements incurred from the contract of loans and other forms of indebtedness
Section 303.
“Local government units shall appropriate in their respective annual budgets such amounts as are sufficient to pay the loans and other indebtedness incurred or redeem or retire bonds, debentures, securities, notes and other obligations issued under this title: Provided, that failure to provide the appropriations herein shall render their annual budgets inoperative.” 12
LEGAL BASIS FOR BOND ISSUANCE
LGC IMPLEMENTING RULES AND REGULATIONS Article 401
“… LGUs shall
appropriate in their respective annual budgets
such amounts as are sufficient to pay the loans and other indebtedness incurred or redeem or retire bonds…” “…
failure to provide
their annual the appropriations herein required shall render
budgets inoperative .”
“Any LGU…
may authorize the National Government to deduct or withhold a portion of its IRA share for the payment of its contractual obligation
.” “…the resolution of the sanggunian shall clearly state the name of the creditor, the nature of the indebtedness, the amount to be withheld, and a period of time that such withholding of IRA shares shall be made.” 13
PRIMER ON MUNICIPAL BONDS PROCESS
• • •
LGU Project Revenue-generating Part of the development plan Approved by the Sanggunian Financial Advisor
• • •
Prepares the project feasibility Secure Sanggunian Ordinance Authorizing the Issuance of Bond to Finance the Project Secure Pertinent legal requirement to issue the bonds (e.g., BSP Opinion, BLGF Approval, etc.)
• •
Identify members of the Bond Issuance Team Secure Sanggunian Ordinance Authorizing the Mayor to Engage the Services of the Bond Issuance Team
• •
Local Chief Executive Sanggunian Ordinance Approving the Final Municipal Bond Terms Sanggunian Ordinance Appropriating Funds Thereof to Support the Project Investors/Bondholders
Fixed Income Exchange - will provide the secondary market trading
Liquidity...?
B I T
Managing Underwriter - will design the features of the bond covering the structure, issue size, interest rate and payment schedule, maturity date, etc.
Profitability LGUGC/Guarantor creditworthiness - will guarantee the bond subject to the issuer’s & issue’s
Safety Trustee will act as the custodian of the funds; manage the project’s sinking fund; and as registry, paying and transfer agent
Public obligations or liabilities Counsel - will review the legal aspects of the bond, special concern is Sec. 303 of 1991 LGC
Debt-servicing capacity Financial Advisor - will have to establish the feasibility of the project (I.e. present positive cashflow projections)
Project’s income generation LGU/Issuer/Borrower
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BOND ISSUANCE PROCESS TIMETABLE
Timetable in Months 1. Project Development, Feasibility Study Preparation, and Hiring of a Financial Advisor, BLGF and DAR/DENR Certification 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 or Municipality 8. Bangko Sentral ng Pilipinas (BSP) Favorable Opinion 9. Preparation of the OS, Primer and Bond Docs.
10. Municipal Bond Offering and Issuance 11. Debt Servicing and Payment of the Principal 1st 2nd 3rd 4th 5th 6th The bond issuance process shall not include this period but will commence after the completion of this activity.
This period shall cover the date of issue up to the maturity date.
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LOAN VS BONDS
DIRECT LOAN
• Pricing is based on the FI’s • transfer pool rate Earning opportunity limited • to the lending institution Dependence on IRA deposits as direct collateral which oftentimes acts as disincentives to FI’s looking • seriously at project feasibility Limited to FI’s internal credit review process
BOND FLOTATION
• Pricing is market-driven • Promotes constituents’ participation in local development and allows them to earn in the process • Allows LGUs to access Capital Market • IRA used only as second way out • Enhances the project management capability of LGUs due to responsibility to investors • Stricter credit evaluation and project monitoring standards • Encourages transparency and development of a proactive rating system 16
INTEREST RATES DIFFERENTIAL
LOANS
Reference Rate (6-Month MART1) 1 Lending Rate (Actual) 2 Add On Rate Trustee Fee Guarantee Fee
Total Annual Fees
Commitment Fee Handling Fee Underwriting Fee
Total Up-front Fees
Total Annual Fees Total Up-front Fees (over 7 years)
TOTAL FEES (Blended)
7.9350%
7.9350%
0.50% 0.75%
1.25%
7.9350% 0.18%
8.11%
1/ as of March 8, 2007 2/ Ave. lending rates of DBP and Land Bank as of March 8, 2007
BONDS
4.5768% 3.00% 0.50% 1.18%
9.2568%
1.00%
1.00%
9.2568% 0.14%
9.40%
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LGU DEBT PORTFOLIO
As of September 30, 2006 A. Loans
Land Bank of the Philippines Philippine Veterans Bank Municipal Development Fund Office Philippine National Bank Development Bank of the Philippines
Approved Amount
P
P
47,873,150,000.00
941,071,829.42
4,661,419,347.76
6,597,485,000.00
9,073,318,755.04
69,146,444,932.22
Bond Amount
B. Bonds*
Philippine Veterans Bank LGU Guarantee Corporation P
P
190,000,000.00
2,814,000,000.00
3,004,000,000.00
Total P 72,150,444,932.22
Source: BLGF *Covers only LGU Bonds guaranteed by mentioned institutions
% Availment Amount
66.35% 1.30% 6.46% 9.14% 12.58% 40,014,450,000.00
741,452,385.83
4,661,419,347.76
5,817,086,000.00
6,900,544,771.76
58,134,952,505.35
Amount Disbursed
0.26% 3.90% 110,457,120.69
1,903,250,000.00
2,013,707,120.69
100.00% 60,148,659,626.04
%
66.53% 1.23% 7.75% 9.67% 11.47% 0.18% 3.16%
100.00%
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THE LGUGC ADVANTAGE
Debt Proceeds Project Revenue
Trust Fund
Project Construction Fund Project Revenue Fund Project Development Project Operating Expenses Fees & Other Expenses
Sinking Fund
Debt Servicing LGU IRA Deposit (Trustee) Guarantor (LGUGC) 19
THE LGUGC ADVANTAGE
TRUSTOR (LGU) LGUGC heads the Project Monitoring Board UNDERWRITER TRUSTEE
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CREDIT GUARANTEE
WHAT WE DO
CREDIT RATING
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CREDIT RATING
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 22
LGU CREDIT SCREENING AND RATING CREDIT CREDIT RATING SCREENING
Managemen
t
Short-term Indicators Operating Performance Financial Condition Development Capacity and Socio-Economic Endowment Tendency for Efficient Debt Repayment Long term Indicators
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CREDIT RATINGS
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
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RATED LGUs
LGU 1. Urdaneta City 2. Aklan Province 3. Puerto Princesa City 4. Tagaytay City 5. Caloocan City 6. Alfonso Lista 7. Taguig 8. Iloilo City 9. Orani, Bataan 10. Baguio City Rating Ba Ba Ba A Ba Ba A Ba Ba A LGU 11. Daraga, Albay 12. Bayambang, Pangasinan 13. Taytay, Rizal 14. Antipolo City 15. San Vicente, Palawan 16. Lucena City, Cagayan 17. Leyte Province 18. Masbate City 19. San Juan, MM 20. Surigao City Rating Ba Ba A Ba B A Ba Ba Aa Ba
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RATED LGUs
LGU 21. Tabaco City 22. Binangonan, Rizal 23. Carmona, Cavite 24. Imus, Cavite 25. Pasay City 26. Kawit, Cavite 27. Butuan City, Agusan 28. Palayan City, Nueva Ecija 29. Calbayog City, Samar 30. Calasiao, Pangasinan Rating A Ba A A Ba Ba Ba B B Ba LGU 31. Mariveles, Bataan 32. Santiago City, Isabela 33. Iriga City, Camarines Sur 34. Zamboanga del Norte 35. Aliaga, Nueva Ecija 36. San Fernando City 37. Baliwag, Bulacan 38. Iloilo Province Rating A Ba Ba A B Ba A A
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CREDIT GUARANTEE
WHAT WE DO
CREDIT RATING COLLABORATION WITH NATIONALGOVERNMENT & DONOR AGENCIES
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COLLABORATION WITH NGAs
• • •
1. Bangko Sentral ng Pilipinas BSP Circular No. 190 Series of 1999
- Allowing LGU debt instruments as eligible alternative for agri-agra (PD 717) compliance
BSP Circular No. 310 Series of 2001
- Reducing risk weight of LGU bonds guaranteed by LGUGC and against IRA assignment from 100% to 50%
BSP Circular No. 462 Series of 2004
– Allowing private banks to act as trustee for bond flotation of LGUs •
2. Insurance Commission
Declaring LGUGC-enhanced bonds eligible reserves for insurance companies •
3. MOAs with DILG & DOF-BLGF
Info exchange and advocacy 28
WHAT WE DO
CREDIT GUARANTEE CREDIT RATING RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS COLLABORATION WITH NATIONALGOVERNMENT & DONOR AGENCIES
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RELATIONSHIP MANAGEMENT
ACCREDITED FINANCIAL ADVISORS
• • • • • • • • AYN Resource Management Group Censeo Financial Solutions, Inc.
FinAcc, Inc.
Investment and Capital Corporation of the Philippines Multinational Investment Bancorporation Preferred Ventures Corp.
The Structured Financial Group, Inc.
Transaction Advisory Services, Inc.
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RELATIONSHIP MANAGEMENT
• • • • • • • • • • • • • •
PARTNER FINANCIAL INSTITUTIONS
Allied Bank Banco de Oro Bank of Commerce Equitable PCI First Metro Investment Corporation Investments and Capital Corporations of the Phils.
Maybank Multinational Investment Bancorporation Philippine Veterans Bank PNB RCBC Capital Security Bank UCPB Savings Bank Unicapital 31
WHAT WE DO
CREDIT GUARANTEE GUARANTEE PROGRAM MANAGEMENT CREDIT RATING RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS COLLABORATION WITH NATIONALGOVERNMENT & DONOR AGENCIES
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PROGRAM MANAGEMENT
I.
Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG) II. Capacity Building to Remove Barriers to Renewable Energy Development – Loan Guarantee Fund (CBRED-LGF) III. Rural Power Project for Photovoltaic Systems – Loan Guarantee Fund (CBRED-LGF)
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AILEEN B. CASTRO Head, Relationship Management Department Email: [email protected]
Tel: (02) 751-8764 to 68 Fax: (02) 888-4217 Website: www.lgugc.com