GCR has affirmed the Niger State Government of Nigeria’s (“Niger State”) national scale long term issuer rating of BBB(NG) (triple B), and the State’s N9bn Fixed Rate Development Bond (being the first tranche of a N30bn bond issuance programme) national scale rating of A-(NG) (single A minus). Niger State was formed from the old North Western State in 1976. The State currently consists of 25 local government areas.
The issuer rating takes cognisance of Niger State’s significant dependence on federally allocated revenue, accounting for an average 91% of total income over the review period (F11: 92%). In this regard, the State is highly exposed to the fortunes of the economy, which, in turn, is impacted by the generally challenging political environment in Nigeria, as well as volatile oil prices. Furthermore, note is taken of the impact this may have on budgets as provided to GCR. The State has budgeted to rapidly escalate infrastructure spend over the medium term. This is, in part, expected to be funded through ongoing bond issuances (under the existing N30bn bond programme or an alternate programme), as well as grants and subventions from the Federal Government of Nigeria. As at FYE11, following the issuance of the first tranche (of N9bn) under the N30bn bond programme, gross gearing increased to 31% (F10: 28%). Whilst note is taken of the fact that no further bond issuances are expected over the medium term (as per budgets provided), with associated gross gearing anticipated to gradually decline, the bond programme remains available to Niger State until May 2013. Excluding the unspent proceeds of the N9bn bond issue in F11, key liquidity measures have remained subdued over the review period. In this regard, day’s cash on hand has averaged 37 days over the past 5 years.
The N9bn Fixed Rate Development Bond is secured by an Irrevocable Standing Payment Order issued by the Federal Government of Nigeria, which provides significant support to this bond rating.
An upward movement of the rating or outlook is unlikely in the short term mainly due to the unpredictable political environment in Nigeria. Furthermore, the State’s significant reliance on federal income to support operational requirements is viewed as a constraint to the rating, particularly in light of the fact that this is heavily influenced by the volatile oil price. In terms of downward movement factors, this may arise following a reduction in federally allocated funds and/or a greater than anticipated rise in miscellaneous expenditure, as this 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 may place strain on gearing metrics, and in turn the rating or outlook.
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