Lagos, 23 October, 2020 – Global Credit Rating Co. Limited has affirmed Plateau State Government’s long-term national scale Issuer rating of BB+(NG), with the outlook revised to Negative. The ratings are valid until October 2021.
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Plateau State Government’s (”Plateau” or “the State”) based on the following key criteria:
Plateau’s ratings are constrained by the subdued country risk assessment, owing to Nigeria’s significant exposures to volatile oil market, exacerbated by the drawn-out impact of the COVID-19 pandemic and the steep fall in global crude oil prices, factors which continue to exert pressures on the federal fiscus and the ability of the national government to financially support State Governments.
This notwithstanding, GCR takes cognisance of the strong growth in IGR, with a 5-year CAGR of 19% as at FY19 and an annualised growth of 11% during 1H FY20, driven by improved tax collection efficiencies and higher receipts from fines and fees. That said, IGR to total recurrent revenue improved to 34% in FY19 (FY18: 25%) and further to 43% in 1H FY20, but this was primarily a result of the significant reduction in federal transfers due to the non-repeat of some special allocations and the oil-induced decline in federal receipts.
GCR notes the downward adjustments in spending (in line with the decline in total receipts), particularly during 1H FY20, as Plateau significantly scaled down transfers to ministries, departments and agencies. While this implies reduced effectiveness of service delivery in the State, the temporary measure could help retain cash for debt service (which has been elevated on account of higher debt utilisation). The State continues to meet its personnel expenses, which remains around GCR’s prudential benchmark of 33%.
After expending a period high c.N20bn in capex, related to various developmental projects in FY19, expansionary spending was very small during 1H FY20 owing to the reduction in total receipts (exacerbated by the inability to access expected grant funding). This notwithstanding, the development of economic and social infrastructures has been progressing through public-private partnerships. Therefore, in addition to the issuance of Series 1 N10bn Bonds during FY19 through 2LP Management Company Limited, in order to facilitate construction of infrastructures, Plateau is in the process of raising another N10.4bn Bonds through the existing special purpose funding arrangement, under the N30bn Medium Term Bond Programme.
The resultant increase in debt service cost will be catered for by the already established irrevocable standing payment order (“ISPO”) on Plateau’s federally allocated revenues. However, the new Bond Issuance will materially elevate the State’s debt level amid decline in gross receipts, and lead to further deterioration in net debt to recurrent revenue ratio above 150% (FY19: 121%; FY18: 91%), placing further pressures on the rating.
The high short-term maturities (43% in FY18 and FY19) does constrain our assessment of the State’s liquidity profile, but this is somewhat counterbalanced by a new high of 54days cash on hand in FY19 (slightly below GCR’s benchmark of 60days), albeit, this is mostly attributable to unspent portions of additional debt draw down.
Sustained improvement in IGR translating to higher total receipts, and moderation in debt to recurrent revenue below 100%, could support an upward rating migration. Conversely, negative rating action could arise from significant reduction in total receipts and further deterioration of gearing metrics beyond GCR’s expectation
NATIONAL SCALE RATINGS HISTORY
|Issuer – Long term||BB+(NG)||Stable||November 2019|
|Issuer – Long term||BB+(NG)||Negative||October 2020|
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Corporate Entities, updated February 2018
Glossary of Terms/Ratios (February 2018)
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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 expire in August 2021.
Plateau State and the Financial Advisers (Eczellon Capital Limited) 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 Plateau State.
The information received from Plateau State and other reliable third parties in according the credit rating included;
- 2019 audited annual financial statements (plus four years of comparative numbers),
- unaudited management accounts as at June 2020,
- 2020 Revised Appropriation Bill,
- industry comparative data and regulatory framework,
- a breakdown of facilities available and related counterparties.
- 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.