GCR affirms Niger State Government’s rating of BBB(NG); outlook Stable
Global Credit Ratings has accorded the above credit rating(s) on Niger State Government based on the following key criteria:
Niger State Government (“Niger”) is located in the North Central region (middle belt) of Nigeria. Population density is low, with the largest industry being agriculture. In addition, the State houses three dams which help to sustain irrigation projects and generate electricity to many parts of the country. Total income has been relatively volatile, fluctuating in line with statutory receipts. However, in contrast to previous years, the rise in total income to N53.6bn (F11: N51.4bn) was driven by Internally Generated Revenue (“IGR”), which more than doubled to N9.5bn. Nevertheless, statutory receipts comprised the bulk of income at 82% in F12, albeit lower than the 90% average over the review period. Total expenditure grew by a much higher 14% to N44.4bn compared to the 4% growth in revenue. Of this, personnel costs comprised a relatively low 20% (lower than GCR’s 35% sustainability benchmark), although miscellaneous expenses have been persistently high and comprised over half of recurrent expenditure in F12, constraining the State’s financial flexibility. Notwithstanding the higher growth in expenditure, the State reported an operating surplus of N9.8bn in F12.
Niger has efficiently managed its debt profile by settling a portion of debt before drawing on further facilities. In this regard, gross debt reduced to N11.1bn at FYE12 as the State fully settled its commercial loans. Thus, the gross debt to income ratio declined to 21% at FYE12, from 31% at FYE11. While there were no further issuances under the N30bn bond programme, gearing metrics could rise over the medium term if the state utilises the full programme limit. However, there are no firm plans in place for further issuances.
The Programme 1 Series 1 N9bn bond issuance is underpinned by an Irrevocable Standing Payment Order (“ISPO”) which fully covers interest and principal redemption. In light of the protection afforded to bondholders by the ISPO, GCR considers a two notch rating uplift appropriate for the bond issue. In addition, there is an accretion of N1.3bn in the sinking fund account as at end June, providing comfort on the capability of the State to effectively service its debt obligations on a timely basis.
Positive rating action is not expected in the short term due to the State’s significant reliance on federal income to support operational requirements, particularly in light of the fact that this is heavily influenced by the volatile oil price. Negative movement factor includes downward revision in federally allocated funds and/or a greater than anticipated rise in recurrent expenditure, both would negatively impact cash flows (and funds available for capex), placing increasing pressure on liquidity metrics. In addition, higher than projected recourse to debt over the medium term, would place strain on gearing metrics.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Oct/2010)|
|Long term: BBB(NG);|
|Last rating (Sep/2012)|
|Long term: BBB(NG);|
|N9bn Series 1 Bond: A-(NG)|
|+234 1 462 2545|
|Sector Head: Corporates|
|+27 11 784 1771|
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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.
Niger State Government 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 Niger State Government with no contestation of the rating.
The information received from Niger State Government and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), internal and/or external management reports, budgeted financial statements, 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.
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.