GCR upgrades Nasarawa State Government of Nigeria’s National Scale Rating to BBB-(NG);Outlook Stable

21 Dec 2018 In Rating Notifications

GCR upgrades Nasarawa State Government of Nigeria’s National Scale Rating to BBB-(NG);Outlook Stable

Lagos, 21 December 2018—Global Credit Ratings has upgraded the long term national scale rating assigned to Nasarawa State Government of Nigeria to BBB-(NG), with the outlook accorded as Stable. Concurrently, the national scale rating accorded to the Tranche 1: N5bn Fixed Rate Bond was also upgraded to A-(NG), with the outlook also accorded as Stable.

The long term issuer and bond ratings are valid until November 2019.


RATING RATIONALE

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

After a steep decline over the last two years, revenue rebounded to a period high N58bn in FY17, on the back of higher statutory receipts and Internally Generated Revenue (“IGR”). While the sustained rise in global crude oil prices and increased oil production spurred an increase in federal receipts, the spike in IGR was galvanised by improved fees collection (mainly from tertiary education institutions in the State). Given the initial success, the State is targeting the further development of tertiary institution as a core sector for economic growth going forward.

Recurrent expenditure rose by around a third to N47.7bn in FY17, to fund the expanded operating costs, while the healthier income allowed Nasarawa to address outstanding staff obligations and widen scope of essential services. Despite this, the operating surplus almost doubled, registering at N10.2bn in FY17, sufficiently covering debt repayment obligations.

The sharp decline in revenue severely impacted the State’s capacity to execute major infrastructural development over the last five years. However, the higher income in FY17 enabled a substantial increase in capex, with further acceleration in investment projected over the medium term. This has the potential to strengthen some of the initial gains achieved, but if the current growth trajectory is not sustained, the infrastructural deficit could widen further, impeding economic growth.

As operating surpluses and capital receipts have dwindled over the past three years, Nasarawa State has relied on borrowings to bridge the funding gap. Accordingly, the debt profile has become elevated, rising by N28.3bn to N40.5bn at FY17. Nevertheless, higher revenue growth served to mitigate the effect of rising loan obligations on debt service metrics, leading to a small increase in the gross debt to income ratio to 70% at FY17 (FY16: 67%), albeit still manageable. GCR positively notes Federal Government of Nigeria’s (“FGN”) support, with over half of debt now comprising FGN loans on concessionary terms, thus, affording the State some funding stability.

The Tranche 1: N5bn Fixed Rate Bond is secured by an Irrevocable Standing Payment Order approved by the FGN, covering both the interest cost and principal redemption. According to the trustees, as at September 2018 all transfers into the sinking fund were up to date and all payments to bond holders had been made. As a result of this credit support, a three notch rating uplift is accorded to the bond Issue.

Positive rating action would be taken in the event of a sustained growth in revenue and in particular IGR. This would provide financial support for infrastructural development, supporting further economic expansion. In contrast, the ratings may come under pressure in the event of a decrease in revenue, which could result in elevated gearing metrics and weak debt serviceability. Continued increase in gearing, even to fund positive projects could saddle the State with excessive debt.


NATIONAL SCALE RATINGS HISTORY


ANALYTICAL CONTACTS


Primary Analyst
Kunle Ogundijo
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
Nasarawa State Government Rating Reports (2013 – 2017)
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 November 2019.

Nasarawa 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 ratings have been disclosed to Nasarawa State.

The information received from Nasarawa State and other reliable third parties to accord the credit rating included;
• the 2017 audited financial statements (plus four years of audited comparative numbers),
• the 2018 budgeted financial statements,
• breakdown of facilities available and related counterparties,
• trustees’ report as at September 30, 2018.

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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