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

21 Dec 2017 In Rating Notifications

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

Lagos, 21 December 2017—Global Credit Ratings has affirmed the long term national scale rating assigned to Niger State Government of Nigeria (“Niger” or “the State”) at BBB-(NG), with the outlook accorded as Negative. Concurrently, the national scale ratings accorded to its Tranche 1 N9bn Bond Issuance was also affirmed at A-(NG).

The long term issuer and bond ratings are valid until November 2018.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Niger State Government of Nigeria based on the following key criteria:

As a result of the challenging economic environment, both statutory receipts and Internally Generated Revenue (“IGR”) evidenced consecutive declines in FY16. Statutory receipts reduced by 28% on the back of lower crude oil prices, while the decline in IGR to N7.9bn (FY15: N10.1bn) reflected the slowdown in business activity across the State. Notwithstanding this, total income grew by N19.6bn to a period high N63bn in FY16, attributed to receipts from non-recurring excess crude, loan refunds and the budget support fund. However, if these non-recurring federal transfers are stripped out, total income would have registered at a period low of N32bn in FY16, which is grossly insufficient to cover the cost base.

 

Recurrent expenditure rose slightly to N46.7bn (FY15: N43.9bn), mainly on account of a 20% rise in overhead costs to N14.2bn, which was triggered by increased spending to facilitate effective administration and service delivery. Given the low level of operating income, non-recurring transfers were required to meet recurrent expenditure, repay loans and also fund a portion of capex. This represents a major risk to Niger’s financial sustainability and increases its reliance on the Federal Government of Nigeria (“FGN”) for support.

In addition to VAT receipts, the additional FGN support enabled the State achieve higher capex of N22.5bn (FY15: N6.9bn). Various development projects are being funded to stimulate the economy, mainly in the area of agriculture (which is Niger’s mainstay).

On the back of increased utilisation of borrowings to fund various expenditures, gross debt has almost trebled over the last four years, registering at a high N40bn at FY16 (FY15: N28bn). Although, the higher income served to moderate gross and net debt to income ratios to 64% and 52% respectively (FY15: 65% and 52%), excluding the non-recurring support fund from income, debt metrics become steeper, with the gross debt to income reaching an excessive 125%. This presents substantial funding risk going forward. Positively, GCR notes the support provided by the FGN, in form of soft loans, which comprised around N23bn/57% of total debt at FY16. These borrowings have long tenors and concessional interest rates, affording the State some funding flexibility. Added to this, the extension of maturity of the bonds serves to ease debt service obligations.

The N9bn Tranche 1 Bond is secured by an Irrevocable Standing Payment Order (“ISPO”) approved by the FGN, covering both the interest and principal redemption. As at the end of September, 2017, there was an accrual of N852m in the sinking fund account.

While an upgrade to the rating is unlikely in the current constrained environment, over the medium to long term positive rating action could emanate from improved oil revenues by the federal government and the ensuing increase in statutory allocation to the State, as well as demonstrated improvement in IGR.  Conversely, lower statutory income, a further decline in IGR, and the sustained rise in debt position could premise a rating downgrade.

NATIONAL SCALE RATINGS HISTORY

ANALYTICAL CONTACTS

Primary Analyst
Samuel Popoola
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
Global Master Criteria for Rating Public Entities, updated February 2017
Niger State Government Rating Reports (2011 – 2016)
Glossary of Terms/Ratios (February 2017)

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 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 are valid until November 2018.

Niger State participated in the rating process via teleconferences and other written correspondences. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings have been disclosed to Niger State with no contestation of the ratings

The information received from Niger State Government of Nigeria and other reliable third parties to accord the credit rating included;
- the audited accounts for the year ended 31 December 2016 (plus four years of comparative numbers);
- the approved budget for 2017
- the Joint Trustees’ report on the Tranche 1 N9bn Bond for the period ended 30 September 2017
- 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.

 

 

 

 

 

 

 

 

 

 

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

15 Jan 2020: Eterna Plc

15 Jan 2020: Plateau State Government of Nigeria

15 Jan 2020: Fidson Healthcare Plc

15 Jan 2020: First Bank of Nigeria Limited

15 Jan 2020: Gombe State Government of Nigeria

15 Jan 2020: Nigeria Reinsurance Corporation

04 Oct 2019: Axxela Limited

04 Oct 2019: Transcorp Hotels Plc

04 Oct 2019: Capital Trust Investment & Asset Management Limited

04 Oct 2019: Chapel Hill Denham Money Market Fund

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) 904 9462-3, 904 9466, 0805 615 8393, 0803 352 7871

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