Johannesburg, 18 Nov 2013 — Global Credit Ratings has today affirmed the national scale Issuer rating assigned to Delta State Government of Nigeria of A-(NG); with the outlook accorded as Positive. Concurrently, the N50bn Fixed Rate Bond has been affirmed at A+(NG); with the outlook accorded as Positive. The rating(s) are valid until 9/2014.
Global Credit Ratings has accorded the above credit rating(s) on Delta State Government of Nigeria based on the following key criteria:
Delta State Government of Nigeria (“Delta”) is located in the Niger Delta region of Nigeria and is one of the largest producers of oil and gas, accounting for a significant portion of the country’s forex earnings. Although total income marginally declined by N3.5bn to N252.5bn in F12, it has evidenced a robust Compound Annual Growth Rate of 9% over the last 5 years. This, however, is heavily influenced by statutory receipts, which averaged 85% over the review period. Notwithstanding this, Internally Generated Revenue (“IGR”) grew by N9.3bn to N46.3bn in F12 (5-year CAGR: 27%). This, as Delta has introduced a number of policies aimed at diversifying the economy under the Delta Beyond Oil programme. For the four months to April F14, IGR registered at an increased N19.4bn (or 23% of total income), providing some evidence of improved self-sustainability. Despite being unable to fund operations through IGR, the State has consistently reported robust operating surpluses (aided by cost containment measures), totaling a combined N418.7bn over the review period. Similar surpluses are budgeted over the medium term.
Notwithstanding a net increase of N48.6bn in debt over the last 3 years, gearing metrics have remained relatively moderate, equating to an unchanged 25% at FYE12 (a review period high). However, budgets indicate that gearing could rise substantially, with a further N50bn likely to be drawn down under the bond programme. This would see the gearing ratio rise to the 35% to 45% range, above historic norms, although still moderate in relation to other State Government borrowings. Cash and equivalents rose by N5.8bn to N25.3bn at FYE12, bolstering liquidity metrics and raising days cash on hand to 58 days, from 42 days in F11 .
The N50bn in notes issued under the first tranche is secured by an Irrevocable Standing Payment Order (“ISPO”) issued by the FGN, covering both the interest cost and principal redemption. As a result, a two notch rating uplift is considered appropriate for the N50bn Bond Issue.
Positive rating action would be considered in the event of a consistent rise in IGR to a level that covers operational requirements. This would significantly reduce dependence on the FGN, and would be positively viewed in terms of evidencing the success of diversification efforts. Negative movement factors include a significant decrease in total income and/or a greater than anticipated rise in recurrent expenditure, as this would negatively impact cash flows (and funds available for capex), and place increasing pressure on liquidity metrics. In addition, were debt levels to exceed the expected gearing band, this would be negatively considered.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Sep/2002)
Last rating (Sep/2012)
Issuer: A-(NG); N50bn bond: A+(NG)
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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.
The credit rating/s has been disclosed to Delta State Government of Nigeria with no contestation of the rating.
The information received from Delta State and other reliable third parties to accord the credit rating included the unaudited financial statements for 2012 (plus four years of comparative numbers), internal and/or external management reports, most recent year to date management accounts, industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties, as well as all necessary bond documentation and the most recent Trustees report. In addition, information specific to the rated entity and/or industry was also received.
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