Growing Fuel Queues in Nigeria; Why and Way Forward
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Fuel Queues Grow Longer After FG Sufficiency Claim
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Farouq Demands Minister’s Clarification of Budget Padding Allegation
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Dangote Cement 9M 2022 Result: Net Earnings Down as Finance Cost Rises by +590%
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Lafarge Cement 9M 2022 Result: Revenue Rises as Finance Costs Dip -46%
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CBN Publishes Financial Markets Department H1 2022 Activity Report
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CEO Remuneration 2022: Introduction to Top Earners by Industries
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World Bank Chief Says Poorest Countries Owe $62 bln on Bilateral Debt
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AMCON Liabilities hit N5.7tn – CBN Report
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CoinW Unites with Regional Partners in Abuja
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Investing in Resilient Internet Will Enhance Inclusive, Sustainable Growth in Africa
– African countries have been urged to invest in building resilient internet infrastructure to tap digital opportunities and accelerate social and economic transformation on the continent. Source United Nations Economic Commission for Africa Read More
NDPB Extends Deadline on Designation of DPOs by MDA to January 2023
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Nigeria’s Booming Short-term Insurance Market
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FIRS Grants Waiver on Outstanding Interests, Penalties Imposed by TaxPro Ma
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Ecobank Transnational Incorporated Plc Declares N117.41bn PAT in Q3’22 Results, (SP: N10.10k)
Ecobank Transnational Incorporated Plc released its Q3 2022 Unaudited results for the period ended September 30th, 2022.
Key Highlights
- Gross Revenue grew by 10.8% from N686.77bn to N761.28bn.
- Profit before tax stood at N168.69bn
- Profit after tax stood at N117.41bn
- Share Price Currently Stands at N10.10k
GCR Assigns First-time National Scale Ratings of BBB(NG) / A3(NG) to Edo State Government of Nigeria, Supported by its Moderately Diversified Economy; Outlook Stable
GCR Ratings (“GCR”) has assigned national scale long-term and short-term Issuer ratings of BBB(NG) and A3(NG) respectively to Edo State Government of Nigeria, with the Outlook accorded as Stable.
| Rated Entity / Issue | Rating class | Rating scale | Rating | Outlook/Watch |
| Edo State Government of Nigeria | Long Term Issuer | National | BBB(NG) | Stable Outlook |
| Short Term Issuer | N |
Rating Rationale
The ratings reflect Edo State Government of Nigeria’s (“Edo State” or “the State”) moderately diversified economy and improved operating performance, with strong agricultural base. These rating strengths are, however, counterbalanced by the State’s continued dependence on federal transfers and its elevated debt.
Edo State is both an oil producing and agrarian state, but agriculture remains the mainstay of its economy. In agriculture, the State is one of the largest palm oil producers, with the presence of listed edible oil producing companies in Nigeria, while its crude oil production accounts for only 2.06% of the nation’s total production. Other notable industrial activities in the State include food processing, brewing, and cement manufacturing. All these have supported a moderately diversified economy with low unemployment rate and relatively educated workforces. The State is scaling up public/private partnerships to benefit from its agricultural strengths, providing the facilities necessary for further value addition, while also committing to clearing infrastructural backlog to attract more investments and further diversify its economy.
The State has evidenced steady growth in internally generated revenue (“IGR”) over the years, except in FY20 due to the COVID-19 disruptions. Edo State ranks among the top-10 States in Nigeria by IGR, supported by the improvement in its tax receipts which grew by 25% in FY21 and 3Q FY22 respectively, on an annualised basis. Nevertheless, the State (like most Nigerian states) remains exposed to macro-economic shocks and the vagaries in the Nigeria oil flows and global oil market due to its reliance on federal transfers, which accounts for about 70% of its total recurrent income over the review period. GCR expects growth in recurrent income to be dependent on IGR and VAT inflows over the rating horizon, considering the constrained fiscal position of the federal government.
Recurrent expenditure has been well managed over the review period, accounting for 48.8% of total recurring income as of 3Q FY22 (FY21: 53.7%), from 60.7% in FY20. The State has demonstrated controls over staff costs, which has historically accounted for below 31% of total expenses (also below GCR’s prudential limit of 33%) despite the implementation of the new minimum wage. This has supported robust capital expenditure of about N152bn over the last twenty-one (21) months to September 2022. GCR expects the State to continue to maintain a healthy consumptive expenditure, which should support a stronger capex implementation in the future.
Leverage and capital structure are key rating constraints. Edo State has reported high debt levels over the review period, with gross debt rising steadily to N208bn at 3Q FY22, from N141.8bn at FY19, largely utilised to finance capex implementation. Accordingly, key credit protection metrics have deteriorated, with net debt to recurrent income registering at high level of 154% at 3Q FY22 (FY19: 121.7%), whilst operating cash flow (“OCF”) to gross debt fell to 26.8% (FY19: 43%) and OCF coverage of net interest dipped to 3.9x (FY19: 11.8x). An additional rating concern is the quantum of its foreign currency loans, registering around 54% of total debt at end-September 2022, given the downside risk to the naira exchange rate. Positively, most debt is on concessionary terms, characterised by low interest rates and long maturities, thus reducing much of refinancing risk. However, the State, through a special purpose vehicle, is planning to raise additional debt of up-to-N25bn to finance some selected infrastructure projects. The debt will constitute contingent liability of Edo State, and the payment obligations secured by irrevocable standing payment order charged on the State’s statutory allocations, exerting pressure on future federal transfers. Over the rating horizon, GCR expects the metrics to trend around the FY21 level, as the uptick in the IGR balances the additional borrowings.
The State has demonstrated moderate liquidity coverage over the years, supported by its adequate operating cash flow and strong relationships with both local and international lenders, which has enabled solid access to diverse funding sources. The State has maintained a modest cash holding over the review period, supporting days cash coverage of recurrent expenses around 50 days. While the pressure on cash is expected to continue over the rating horizon, the exposure to liquidity events should remain moderate. GCR expects sources vs uses coverage to be around 1x over the outlook period.
GCR has factored government support into the ratings as the State benefits from ongoing funding support from the Federal Government of Nigeria through steady federal allocations, bailout, and palliatives where necessary. This is because the State fulfils a critical social service, being at the forefront of improving the day-to-day quality of life for the citizens. The federal allocation is a monthly statutory transfer due to the States, payable by the federation accounts allocation committee. However, this monthly transfer is largely susceptible to the vagaries at the international oil market and the Nigeria oil flows.
Outlook Statement
The Stable Outlook reflects GCR’s view that Edo State’s income will continue to rise over the outlook period, helping to sustain debt service metrics and moderate liquidity position.
Rating Triggers
A positive rating movement is contingent on sustained growth in IGR which reduces dependence on federal transfer to 50%, supports capex implementation and translates to improvement in leverage metrics.
A rating downgrade could emanate from 1) a material growth in debt without proportionate growth in revenue, resulting in further deterioration of the leverage metrics; 2) a significant increase in recurrent expenses which constrains CAPEX implementation; 3) a deterioration in liquidity profile.
Ratings History
Edo State Government of Nigeria
| Rating class | Review | Rating scale | Rating | Outlook/Watch | Date |
| Long Term Issuer | Initial/Last | National | BBB(NG) | Stable Outlook | December 2022 |
| Short Term Issuer | Initial/Last | National | A3(NG) |
Risk Score Summary
| Rating Components and Factors | Risk scores |
| Operating environment | 6.75 |
| Double Country risk score | 7.50 |
| Sector risk adjustment | (0.75) |
| Business Profile | 0.75 |
| LRG profile | 0.75 |
| Operating performance | 0.00 |
| Management and governance | 0.00 |
| Financial profile | (2.25) |
| Leverage & capital structure | (2.00) |
| Liquidity | (0.25) |
| Comparative profile | 1.50 |
| Government support | 1.50 |
| Peer comparison | 0.00 |
| Total Risk Score | 6.75 |
Salient Points of Accorded Ratings
GCR affirms that a.) no part of the ratings 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; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit ratings have been disclosed to Edo State Government. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.
Edo State Government participated in the rating process via teleconferencing and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Edo State Government and other reliable third parties to accord the credit ratings included:
- Edo State Government Audited Financial results for 2016 to 2021.
- Edo State Government’s Auditor General Reports 2021
- Budget performance report (Summary) as of September 2022
- Multi-years approved budget 2022-2024
- Debt facility details as of 30 September 2022
