Announcements

GCR accords Nassarawa State Government of Nigeria an initial rating of BBB(NG); outlook Stable

Johannesburg, 20 Dec 2013 — Global Credit Ratings has today assigned an initial national scale issuer rating to Nassarawa State Government of Nigeria of BBB(NG); with the outlook accorded as stable. Concurrently, the proposed N10bn Fixed Rate Development Bond has been assigned an indicative rating of A-(NG); with the outlook accorded as stable. The long term issuer rating is valid until 11/2014, while the indicative Bond rating is valid until 03/2014 .

RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) on Nassrawa State Government of Nigeria based on the following key criteria:

Nassarawa State Government (“Nassarawa”) is located in the central region of Nigeria and is one of the largest producers of food and cash crops, including mango, citrus and oil palm. The State’s income grew at a robust Compound Annual Growth Rate (“CAGR”) of 20% between F08-F12. Although this was driven by statutory receipts, which averaged 90% over the review period, it provides a reliable underpin to income. Notwithstanding this, the State has intensified efforts to diversify the economy and improve Internally Generated Revenue (“IGR”), thereby reducing dependence on federal allocations. Key within the developmental program is the establishment of the Nassarawa Geographical Information System to carry out the aerial mapping of the State and thereby aid developmental efforts by providing accurate data. In addition, various other infrastructure projects have been identified. Whilst the state did report operating deficits in F08 and F09, revenue growth has surpassed expenditure in recent years, resulting in successive operating surpluses from F10 to F12. As indicated in the budgets, this is expected to continue over the medium term.

 

Nassarawa’s debt profile has remained relatively low over the review period. With the State settling a significant portion of its internal loans, debt reduced to N7bn at FYE12, from a period high of N12.3bn at FYE11. However, as part of measures to address the infrastructure deficit, the State is in the process of initiating a N20bn Bond programme, with a proposed first Tranche issuance of N10bn by FYE13. This would see the debt to income ratio rise to the 35% level at FYE13, from just 14% at FYE12.

 

The N10bn in notes to be issued under the first tranche will be secured by an Irrevocable Standing Payment Order (“ISPO”) approved by the FGN, covering both the interest cost and principal redemption. As a result, a two notch rating uplift is considered appropriate for the Bond Issue. However, the First Tranche Bond Issuance rating will only be affirmed on receipt of a signed confirmation of the approved ISPO from the Federal Government. Until then the rating remains indicative.

 

Positive rating action is unlikely in the short term mainly due to the State’s significant reliance on federal income and its inability to adequately grow IGR to a sustainable level that fully covers operational requirements. Negative movement factors include a downward revision in federally allocated funds and/or a continuous rise in recurrent expenditure. Both factors would negatively impact cash flows and funds available for capex, placing increasing pressure on liquidity metrics (as evidenced in F08 and F09). Higher than projected recourse to debt over the medium term would also be negatively viewed.

NATIONAL SCALE RATINGS HISTORY
Initial rating (Dec/2013)
Long term: BBB(NG)
Indicative N10bn Fixed Rate Development Bond: A-(NG)
Outlook: Stable
ANALYTICAL CONTACTS
Primary Analyst
Kunle Ogundijo
Analyst
+23 41 462-2545
kunle@globalratings.net
Committee Chairperson
Eyal Shevel
Sector Head: Corporates and Public Sector
Johannesburg
+27 11 784 1771
shevel@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

GCR’s Global Master Criteria For Rating Public Entities

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Nassarawa State Government of Nigeria participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating/s has been disclosed to Nassarawa State Government of Nigeria with no contestation of the rating.

The information received from Nassarawa State Government of Nigeria and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus four years of comparative numbers), internal and/or external management reports, managment accounts for 6 months to June 2013, budgeted financial statements, a breakdown of facilities available and related counterparties, as well as the Bond Programme pre-listing prospectus and other related bond documentation. In addition, information specific to the rated entity and/or industry was also received.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GLOBALRATINGS.NET/UNDERSTANDINGRATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GLOBALRATINGS.NET/RATINGSINFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

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