Announcements Corporate Rating Alerts

GCR affirms Nasarawa State Government of Nigeria’s National Scale Rating of BBB-(NG); Outlook Stable

Lagos, 15 January 2021 — Global Credit Ratings has affirmed the long term national scale Issuer rating assigned to Nasarawa State Government of Nigeria of BBB-(NG), with the Outlook accorded as Stable. Concurrently, the national scale rating accorded to the Series 1: N5bn Fixed Rate Bond was also affirmed at A-(NG), with the outlook accorded as Stable.

The long term Issuer and Bond ratings are valid until October 2021.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Nasarawa State Government of Nigeria (“Nasarawa State” or the “State”) based on the following key criteria:

Nasarawa State is an important agrarian State, with year round production of food and cash crops. Nevertheless, the State’s earnings generating capacity is constrained by the lack of adequate social and commercial infrastructure required to enhance production through mechanised processes, and thereby generate higher sustainable income.

Recurrent income progress steadily between FY16 to FY18 due to a combination of higher internally generated revenue (“IGR”) and stronger inflows from the federal government. However, this tapered in FY19 on the back of a steep fall in federal receipts. The ex-value added tax and IGR sustained an upward trajectory since FY16, underpinned by higher income tax, improved collection efficiencies, and receipt from fines, fees and government sales.

The State’s rating is constrained by low country risk assessment, owing to Nigeria’s significant exposures to volatile oil market, exacerbated by the drawn out impact of COVID-19 pandemic and the steep fall in global crude oil prices, factors which continue to exert pressures on the federal fiscus. Specifically, the State manifest high vulnerabilities to oil driven federal receipts, although a bit better than peers with 56% dependence on FGN in FY19 (peer average 61%).

Despite some variability witnessed over the cycle, primarily driven by persistent elevation in the recurrent expenditure profile, the State reported operating surpluses in all the review years at an average margin of 37%. GCR expects the operating surplus margin to moderate in FY20-21 to reflect the impact of the COVID-19 pandemic.

Total recurrent expenditure has increased persistently in the past two years, registering at N53bn in FY19, primarily attributable to increasing administrative function of the State, improved service delivery and higher support to MDAs in the form of subventions. Personnel costs represent the singular largest cost element and has remained around an average 34% of total costs (FY19: 36%), broadly in line with GCR’s benchmark for prudential costs.

Nasarawa enjoys financial support from various debt facilities as it utilises various debts to fund its projects, the State relies heavily on foreign loans, risking exposures to foreign exchange volatilities amidst naira depreciation against the USD. Gross debt peaked at N54.5bn following the N5bn bond issuance in FY19 (FY18: 43.6bn), as well as budget support facilities (albeit the registered level is still considered conservative).

Nasarawa’s cash coverage of running expenses remains low with the days cash on hand registering at 41 days in FY19 (FY18: 40 days), below the GCR’s benchmark of 60-90 days. While the backlog of delayed salaries in FY18, as well as capex could pressure liquidity, the World Bank grant accessed towards FY20 year-end will help to ease liquidity.

Positive rating action would be taken in the event of consistent and meaningful improvement in IGR and stable federal transfers. In contrast, the ratings may come under pressure in the event of decline in statutory receipts and/or IGR, as well as continuous rise in debt.

NATIONAL SCALE RATINGS HISTORY

Rating Class Rating Outlook Date
Initial Rating
Issuer rating: BBB(NG) Stable December 2013
N5bn Tranche 1 Fixed Rate Bond A-(NG) Stable December 2013
Last Rating
Issuer rating BBB-(NG) Stable March 2020
N5bn Tranche 1 Fixed Rate Bond A-NG) Stable March 2020

ANALYTICAL CONTACTS

Primary Analyst

Biyi Baruwa

Lagos

+23 41 904 9462

biyi@gcrratings.com

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Public Entities, updated February 2018

Nasarawa State Government Rating Reports (2013 – 2019)

Glossary of Terms/Ratios (February 2018)

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.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.COM.NG/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.COM.NG.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity; d) the ratings are valid until October 2021.

Nasarawa State participated in the rating process via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings have been disclosed to Nasarawa State.

The information received from Nasarawa State and other reliable third parties to accord the credit rating included;

  • the 2019 audited financial statements (plus four years of audited comparative numbers),
  • 5 months management accounts to May, 2020.
  • breakdown of debt facilities available and related counterparties,
  • Approved budget for 2020 and revised budget for 2020,
  • most recent trustees’ report on the bonds as at September 30, 2020,

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

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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.

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