Announcements Corporate Public Sector Rating Alerts

GCR affirms Niger State Government’s long term Issuer rating of BBB-(NG) with a Stable Outlook

Lagos, Nigeria, 13 September 2021 – GCR Ratings (“GCR”) affirms the national scale long-term and short-term Issuer rating of BBB-(NG) and A3(NG) respectively accorded to Niger State Government with a Stable Outlook. Concurrently, GCR has affirmed the national scale long-term Issue rating of A-(NG) accorded to the Tranche 1, N9bn Fixed Rate Bond of Niger State Government, Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Niger State Government of Nigeria Long Term Issuer National BBB-(NG) Stable
Short Term Issuer National A3(NG)
Tranche 1 Fixed Rate Bond Long Term Issue National A-(NG) Stable

Rating Rationale

The ratings of Niger State Government of Nigeria (“Niger”, “the State” or “Niger State”) are largely underpinned by the well-established State Government structure and ongoing funding support from the federal government of Nigeria. This counterbalances the State’s weak entity profile, weak infrastructure base and low internally generated revenue (“IGR”), as well as moderately high gearing.

With a large land mass, Niger State is a major agrarian hub in Nigeria. However, the infrastructure and value chain to transform the produce to finished product remain negligible, which has limited employment in the sector and income levels. Consequently, a sizable portion of the State’s population requires free service. 66.1% of the population live below the poverty line as of 2019, while 38.8% of its labour force were unemployed as at Q4 2020, trending above the national average of 40.1% and 27.2% respectively. Note is taken of the various catalytic project undertaken by the State to improve agricultural output and value chain, economic activities, socio economic indicators and diversify earning base to improve IGR. Some economic activity is facilitated by the three major hydro-electric dams housed in the state, with a combined capacity of about 1,978 megawatts, as well as Niger State’s proximity to the Federal Capital Territory.

Operating performance is moderately negative. IGR declined by 19% Y/Y in FY20 to register at 11bn (FY19: 13.7bn) largely due to COVID19 related disruptions. Even with the decrease, IGR progressed at a CAGR of 21% in the five years to FY20. Nevertheless, dependence on federal transfers (Statutory allocations and VAT) continues, with IGR only contributing 15% of recurrent income. Recurrent expenditure increased slightly due to the implementation of the new minimum wage and COVID related expenses but was counterbalanced by the savings on overheads due to less economic activity. Although the operating surplus narrowed in FY20, increase in capital receipts (grants and loans) supported record developmental spend of N42bn (FY19: 33bn). GCR expects improved revenue performance (driven majorly by IGR and VAT) to support an operating surplus and rising development spend over the medium term.

With the adoption of accrual IPSAS, GCR has not taken a negative adjustment for Management and Governance as the current financial reporting framework has improved disclosure. In addition, GCR notes that the Auditor General of the State has not flagged any major issue and a clean report has been issued over the past five years. Nevertheless, the timeliness and accuracy of information remains a concern.

The rise in gross debt to N83bn in FY20 (FY19: 62bn) is a rating constraint. Additional borrowings used to finance infrastructural development coupled with the weak income have resulted in a meaningful deterioration in credit protection metrics, with net debt to recurrent income rising to 105% at FY20 (FY19: 69%). Similarly operating cash flow OCF to gross debt fell to 15% (FY19: 30%), while OCF coverage of interest weakened significantly to 3.6x, from 10.6x in FY19. Nevertheless, GCR expects improved revenue performance to support improvement in credit protection metrics over the rating horizon, albeit that is debt continues to increase further pressure on metrics is likely. .The high utilisation of foreign currency denominated loan is a concern as there remains downside risk to the Naira exchange rate over the short to medium term. However, these concerns are somewhat offset by the concessionary nature of the loans, low interest rate and long maturity profile. Most loans are received from the FGN and development partners, suggesting low refinancing risk.

Niger State’s liquidity position has deteriorated somewhat, with lower cash holdings of N5bn at FY20 (FY19: XX) and a decline in days cash on hand to 28 days. (FY19: 44 days). Moreover, to conserve some cash, the State has diverted some payables and unfunded pension liabilities have increased. While this has supported firmer liquidity through the COVID disruption, it does suggest liquidity pressure over medium term as the amounts need to be settled. GCR views such deferrals negatively and could reduce the liquidity assessment further if this trend continues. GCR expects uses vs sources coverage to be around 1x-1.5x over the rating horizon, predicated on moderate additional borrowing, improved operating surplus and cash holding, sufficient to cover loan servicing, repayment, and CAPEX spend.

GCR has factored government support into the ratings as the State benefits from ongoing funding support from the federal government of Nigeria through steady federal allocations, bailout, sand palliatives where necessary. This is because the State fulfils a critical social service, being at the forefront of improving the day-to-day quality of life for its citizens. The federal allocation is a monthly statutory transfer due to the State, payable by the federation accounts allocation committee. However, this monthly transfer is largely susceptible to the volatility at the international oil market.

Niger State raised N9bn under its Tranche 1 Fixed Rate Bond Issuance in 2011, with the proceeds utilised for financing the socio-economic projects. The bonds are fully backed by an Irrevocable Standing Payment Order issued by the Office of the Accountant General of the Federation as a first line charge upon and payable out of the statutory allocation of the State. GCR has reviewed the Trustees bond performance reports in respect of the existing bonds and no breach was flagged. Accordingly, the Bond rating is derived by applying a three-notch uplift starting from the long-term rating of the Issuer. The bond is expected to mature by the end of September 2020.

Outlook Statement

The Stable Outlook reflect GCR’s view that Niger State will continue to benefit from strong funding support from the Federal Government of Nigeria.

Rating Triggers

Rating uplift is unlikely within the medium term as the economic base remain weak, and the reliance on federal transfers (Statutory Allocations and VAT) persists. However, moderation in debt and thus gearing metrics, as well as an improved liquidity position could improve the rating. Over the longer term, sustainable growth in IGR that leads to an improvement in socio economic metrics would be positively considered.

The rating may come under pressure if there is a further increase in debt without a proportionate growth in revenue that leads to a deterioration in credit protection metrics. Weaker liquidity or a perceived weaking in government support could lead to a rating downgrade.

Analytical Contacts

Primary analyst Idris Oyekan Analyst: Corporate Ratings
Lagos, Nigeria Idris@GCRratings.com +234 1 9049462
Committee chair Eyal Shevel Group Head of Ratings
Johannesburg, ZA Shevel@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Local and Regional Governments, June 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Nigeria Country Risk Scores, February 2021
Niger State rating reports 2012-2020

Ratings History

Niger State Government

Rating class Review Rating scale Rating Outlook/Watch Date
Long Term Issuer Initial National BBB(NG) Stable Outlook Jun 2011
Long Term Issuer Last National BBB-(NG) Stable Outlook May 2021
Short Term Issuer Initial National A3(NG) n.a. May 2021
Short Term Issuer Last National A3(NG) n.a. May 2021
Tranche 1 Fixed Rate Bond Initial National A-(NG) Stable Outlook Jun 2011
Tranche 1 Fixed Rate Bond Last National A-(NG) Stable Outlook May 2021

Risk Score Summary

Rating Components and Factors Risk scores
Operating environment 6.75
Double Country risk score 7.50
Sector risk adjustment (0.75)
Business profile (2.25)
LRG profile (1.75)
Operating performance (0.50)
Management and governance (0.00)
Financial profile (1.75)
Leverage & capital structure (1.50)
Liquidity (0.25)
Comparative profile 3.00
Government support 3.00
Peer comparison 0.00
Total Risk Score 5.75

Glossary

Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Cash Funds that can be readily spent or used to meet current obligations.
Coverage The scope of the protection provided under a contract of insurance.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Diversification Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Issuer The party indebted or the person making repayments for its borrowings.
Leverage Regarding corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Long Term Rating See GCR Rating Scales, Symbols and Definitions.
Market An assessment of the property value, with the value being compared to similar properties in the area.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
Operating Cash Flow A company’s net cash position over a given period, i.e. money received from customers minus payments to suppliers and staff, administration expenses, interest payments and taxes.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Short Term Rating See GCR Rating Scales, Symbols and Definitions.
Short Term Current; ordinarily less than one year.

SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the ratings 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; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to Niger State Government. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

Niger State Government participated in the rating process via written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Niger State Government and other reliable third parties to accord the credit ratings included:

  • The audited financial results for the year ended 31 December 2020.
  • Four years of comparative audited numbers.
  • Budget performance report (summary) as at Q2 2021.
  • Approved budget for 2021.


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.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.