GCR affirms Delta State Government of Nigeria’s National Scale Rating at A-(NG); Outlook Negative

02 Nov 2015 In Rating Notifications

GCR affirms Delta State Government of Nigeria’s National Scale Rating at A-(NG); Outlook Negative

Lagos, 2 November 2015—Global Credit Ratings has affirmed the long term national scale rating assigned to Delta State Government of Nigeria at A-(NG), with the outlook accorded as Negative. Concurrently, the national scale rating accorded to the Tranche 1 N50bn Fixed Rate Bond was also affirmed at A+(NG), with the outlook also accorded as Negative.

The long term issuer and bond ratings are valid until October 2016.


RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) to Delta State Government of Nigeria (“Delta State”) based on the following key criteria:

Total revenue reduced to N235.3bn in F14, as result of declines to both statutory receipts and Internally Generated Revenue (“IGR”). These revenue sources have been impacted by the sustained slump in global oil prices, leading to a 15% reduction in statutory receipts to a 4-year low of N192.7bn. This also constraining IGR (as the State’s economy is driven by activities in the oil industry), with such receipts declining by N9.6bn to N42.6bn in F14. As IGR largely relates to tax receipts (F13: 93% of IGR; F14: 91%), the overall 18% decline was attributed mainly to lower tax receipts, which reduced by N9.7bn to N38.9bn in F14. While the effect of the oil price decline on revenue was minimised in F14 (cushioned by the strong surpluses of prior years), the impact is being more acutely felt in F15 and this is expected to persist over the medium term. In this regard, total income of just N88.4bn was reported in 1H F15, representing just a third of the full year budget.

As a consequence of the lower F14 revenue, a 5% rise in general expenditure to N183.6bn and 75% higher debt service charges of N51.7bn, the operating surplus before debt service charges reduced by 22% to N103.3bn in F14. This surplus covered debt service charges by a much reduced 2x in F14 (F13: 4.5x), following which the operating surplus halved to a six-year low of N51.6bn in F14, equating to a reduced 22% operating margin (F13: 37%).

Capex spend remained high in F14, albeit falling to a four-year low of N112.1bn, with funding including a large component of new borrowings. Specifically, Delta State reported a N16.4bn rise in debt to a new high of N92.2bn at FYE14, and as a consequence, gross and net debt to total income increased to 39% and 30% respectively; albeit with this gearing remaining at comfortable levels.

The Tranche 1 N50bn Fixed Rate Bond is secured by an Irrevocable Standing Payment Order (“ISPO”) approved by the Federal Government of Nigeria (“FGN”), covering both the interest cost and principal redemption. As a result of this credit support, the bond has been accorded a two-notch rating uplift relative to the issuer rating. Further to this, as the bond rating is directly linked to the issuer rating, any positive or negative movement in the issuer rating would have a direct impact on the Issue rating.

The negative outlook assigned to both the issuer and the bond ratings reflects the large negative impact that the fall in global oil prices has had on the FGN’s finances and those of Delta State, with the State being particularly impacted by the fall in oil prices (given that it is one of Nigeria’s key oil producing states). Given these challenges, positive rating action is unlikely in the short term. However, a rebound in oil prices, together with sustained growth in IGR and the demonstrated ability to expand and diversify the State’s economic base, could result in positive ratings action over the medium-long term. In contrast, the ratings could come under further pressure in the event of a sustained decrease in statutory receipts and/or IGR (negatively impacting operating cash flows), as well due to a material rise in interest-bearing debt levels relative to income.


NATIONAL SCALE RATINGS HISTORY

Initial rating (September 2002)
Issuer rating: A+(NG);
Outlook: Positive.
N50bn Tranche 1 Fixed Rate Bond: A+(NG)- (September 2011);
Outlook: Stable.

Last Rating: (May 2015)
Issuer rating: A-(NG);
Outlook: Negative.
N50bn Tranche 1 Fixed Rate Bond: A+(NG).
Outlook: Negative.


ANALYTICAL CONTACTS

Primary Analyst
Kunle Ogundijo
Analyst
Lagos
+23 41 462 2545
.(JavaScript must be enabled to view this email address)


Committee Chairperson
Dave King
Chairman
.(JavaScript must be enabled to view this email address)

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Public Entities (updated February 2015)
Delta State Government Rating Reports (2011 – 2014)
Glossary of Terms/Ratios (February 2015)
Market alert, 18 May 2015 - GCR Downgrades five State government ratings, places the Nigerian sub-national sector on ‘Negative Outlook’

 

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 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; d) the ratings are valid until October 2016.

Delta 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 rating/s has been disclosed to Delta State with no contestation of the ratings.

The information received from Delta State Government of Nigeria and other reliable third parties to accord the credit rating included:
- the unaudited accounts for the year ended 31 December 2014 (plus four years of comparative numbers);
- the approved budget for 2015;
- the Joint Trustees report for the period ended 30 June 2015; and
- the draft accounts for the six-month period ended 30 June 2015.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. 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 THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. 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 THE UNDERSTANDING RATINGS SECTION OF 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 © 2013 Global Credit Rating Company Limited. THE INFORMATION CONTAINED HEREIN 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. The ratings were solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR has been compensated for the provision of the 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 herein 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 herein 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.

Click on logo below to view more information about Global Credit Ratings Africa

Recent Rating Reports

10 Oct 2017: Rand Merchant Bank Nigeria Limited

10 Oct 2017: Leadway Assurance Company Limited

10 Oct 2017: North South Power Company Limited

10 Oct 2017: First Bank of Nigeria Limited

10 Oct 2017: Nigeria Mortgage Refinance Company Plc

10 Oct 2017: Dangote Cement Plc

10 Oct 2017: Fortis Microfinance Bank Plc

10 Oct 2017: Flour Mills of Nigeria

10 Oct 2017: Sterling Investment Management SPV PLC

10 Oct 2017: FSDH Merchant Bank Limited

Purchase Rating Reports

Parties interested in purchasing individual or sectoral rating reports and/or bulletins from Global Credit Rating Company Limited are kindly requested to contact us on the following telephone numbers or email address.

Telephone: (+2341) 462 2648, 460 5001, 0805 615 8393, 0803 352 871

Email: bisi@warltd.com

Email: tunde@globalratings.net

Recent Bulletin Releases
Rating Sectors
Credit Ratings

For a full list of Credit Ratings performed by Global Credit Ratings Company Limited please click here