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

21 Feb 2019 In Rating Notifications

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

Lagos, 21 February 2019—Global Credit Ratings has affirmed the long term national scale Issuer rating assigned to Niger State Government of Nigeria (“Niger” or “the State”) at BBB-(NG), with the outlook accorded as Stable. Concurrently, the national scale rating accorded to its Tranche 1 N9bn Bond Issuance was also affirmed at A-(NG), with the outlook accorded as Stable.

The long term Issuer and Bond ratings are valid until October 2019.

RATING RATIONALE

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

The combination of higher internally generated revenue (“IGR”) driven by a wider tax coverage, and increased federal allocations and funding support underpinned the 8% revenue growth reported in FY17. However, IGR performance still lagged budget as some of the planned revenue generating initiatives were not optimally implemented. Although, IGR is budgeted to grow 61% growth in FY18 and further by 11% in FY19, the State’s degree of dependence on federal government is expected to remain high at c.80%.

While recurrent expenditure rose 16% to N53.9bn in FY17, the bulk of this related to subventions to parastatals (which provide critical social services) and highlighted the availability of sufficient funding resources in the year. In this regard, the operating surplus reduced to N14.2bn (FY16: N16.3bn), albeit still strong. However, the recent approval by the State of a 25% salary increase and the resumption of leave grants effective FY19 is projected to result in a three-fold spike in personnel costs and significantly impact the operating surplus.

In addition to the robust operating surplus, substantial VAT receipts and cash holdings were utilised to fund higher capex of N24.2bn (FY16: N22.5bn). Various development projects are being funded to stimulate the economy, through higher tax returns to the State mainly from the agricultural sector (which is Niger’s mainstay).

Niger State was materially impacted by foreign exchange volatility in FY17, with foreign loans doubling to N17.4bn and accounting for 1/3 of total debt. This, combined with additional commercial loans, resulted in a spike in gross debt to N52.5bn (FY16: N40bn) and net debt to income deteriorated to 68% (FY16: 42%). Further drawdowns of commercial debt and/or any foreign currency pressure will impact credit protection metrics, especially, if there is no demonstrated improvement in earnings. However, recent agreements with various international development finance institutions and non-governmental/charity organisations are positively considered and should ensure future funding support.

The N9bn Tranche 1 Bond is secured by an Irrevocable Standing Payment Order (“ISPO”) approved by the Federal Government of Nigeria (“FGN”), covering both the interest and principal redemption. As at the end of September, 2018, there was an accrual of N1bn in the sinking fund account.

Demonstrated improvement in IGR, stable allocations from the federal government and the receipt of other funding support are critical to a positive rating action. Conversely, any material elevation in recurrent expenditure without a proportionate increase in total income will impact on operating surplus and may necessitate higher debt reliance and thus, place pressure on the ratings.

NATIONAL SCALE RATINGS HISTORY

ANALYTICAL CONTACTS

Primary Analyst
Samuel Popoola
Analyst
Lagos
+23 41 904 9462
.(JavaScript must be enabled to view this email address)

Committee Chairperson
Dave King
Chairman

APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Public Entities, updated February 2018
Niger State Government Rating Reports (2011–17)
Glossary of Terms/Ratios (February 2018)

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 October 2019.

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.

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 2017 (plus four years of comparative numbers);
- the approved budget for 2018;
- the Joint Trustees’ report on the N9bn Tranche 1 Bond for the period ended 30 September 2018;
- a breakdown of facilities available and related counterparties, and
- 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.

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