Fitch Rates Kaduna State ‘B’; Outlook Stable
By Modupe Gbadeyanka
Fitch Ratings has assigned Kaduna State Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) of ‘B’ and a National Long-Term Rating of ‘A+(nga)’. The Outlooks are Stable.
In a statement issued on Friday, Fitch said the ‘B’ ratings reflect Kaduna’s dwindling revenue prospects in line with declining statutory allocations from the central government as a result of weak oil prices. Oil-related revenues account for 70% of Nigeria’s current external receipts and Kaduna’s current revenue.
The ratings also reflect the region’s fast growing debt although servicing requirements will be moderated by government subsidies, concessionary terms and a long grace period. They further take into account the state’s developing economy focused on agricultural activities and low per capita revenue by international standards.
The ‘A+(nga)’ rating reflects Kaduna’s low risk relative to the country’s best risk given strong financial and revenue support from the central government.
The Stable Outlooks factor in Fitch’s expectation that a flexible expenditure framework and a sustainable borrowing capacity will allow Kaduna to weather volatile statutory transfers in the medium term.
According to the statement, the ratings assigned reflect the following rating drivers and their relative weights:
Weak Institutional Framework
As with other Nigerian states, Kaduna’s finances are affected by weak revenue predictability, and by high budgeted capital spending being rolled over into following financial years due to a lack of funding and limited implementation capacity. Waning transfers from Federal Accounts Allocation Committee (FAAC) amid the oil sector down-cycle provide renewed stimulus for tax revenue diversification but benefits may be visible only in the medium- to long-term.
Long-term Debt Challenge.
Kaduna State is increasing borrowing rapidly to fund capex in core infrastructure to sustain GDP growth and diversify revenue sources. Total debt at the end of fiscal year 2015 totalled NGN73bn and Fitch envisages it will more than double by end-2018 to 160% of current revenue, to finance projects mainly in the power, transport, water supply, education and healthcare sectors.
Fitch expects annual debt service requirements up to NGN8bn-NGN10bn, which will continue to be covered by the current balance and may be balanced with faster growth of internally generated revenue (IGR) in the medium term. Fitch expects Kaduna’s cash position to remain strong at around NGN30bn, hence providing adequate cushion for debt cash calls in the short-term.
FAAC Impacting Fiscal Performance
The FAAC is the primary mechanism for funding Nigerian states. Its process, which determines funding levels allocated on a monthly base, is derived from revenues accruing to the federal government, largely sourced from the oil sector. In line with plummeting oil prices and falling production, Kaduna’s statutory allocations declined to NGN52bn or 66%-70% of revenues, a trend Fitch expects to continue in 2016 with a further 20-25% decline.
Under its base case scenario, Fitch expects Kaduna to partially compensate for lower FAAC revenues in 2016 with a flexible expenditure framework that will see spending decline through the economic cycle. We forecast an operating margin of 10% in 2016, down from 16% in 2015 and a 10-year average of 40%. Fitch believes Kaduna can return to its 40% mark over the medium-term if it is able to raise local taxes.
IGR totalled NGN13bn in 2015 or nearly 20% of operating revenue, having languished at around NGN12bn over the last five years. However, given the low level of tax compliance and slowing growth from an agricultural economy, non-oil revenues should increase slowly as the administration pushes to expand the tax base.
Weak Socio-Economic Profile
Within the context of Nigeria, Kaduna’s fast-growing population and a traditionally strong primary sector contribute to weak socio-economic standards, including growing unemployment. A dominant agricultural sector drives the economy while Kaduna’s 2016-2020 plan is focusing on the state’s rich minerals resources by attracting foreign investors to key industrial projects.
Transparency to Stimulate Investments
To attract private and foreign investments, Kaduna’s administration is committed to improving the state’s transparency and disclosure. Fitch believes that the transition from cash to a more sophisticated accrual-based accounting is a credit positive, as it restricts the scope for discretionary initiatives and human errors visible in the past.
An upgrade could materialise if the operating margin strengthens towards 30% and if the fiscal deficit narrows due to IGR growth or tighter-than-expected cost control.
Conversely, financial debt growth leading to debt-to-current revenue ratios being consistently above Fitch’s expectations could result in a downgrade. Unrest damaging economic prospects or undermining oil-related revenue could also lead to a downgrade.
Dangote Says N300bn Bond Listing Reflects Nigerian Capital Market Depth
By Aduragbemi Omiyale
The listing of Dangote Industries Limited’s N300 billion series 1 and 2 bonds on the Nigerian Exchange (NGX) Limited has been described as an indicator of the depth of the Nigerian capital market.
The Group Chief Executive Officer of the conglomerates, Mr Olakunle Alake, said this on Wednesday when a closing gong ceremony was held to celebrate the completion of the listing of the corporate debt instrument on the local stock exchange.
Mr Alake, represented by the Group Chief Finance Officer, Mr Mustapha Ibrahim, said, “We are pleased to have showcased the depth and liquidity of the domestic capital market whilst we reflect the strong quality of the issuer, despite the current global market realities.”
According to him, the depth of the market was reflected in the successful issuance of the bond, which was the largest aggregate local currency bond issued in the capital market so far within the year.
He further noted that the listing of the bond recorded participation from a wide range of investors, including domestic pension funds, asset managers and insurance companies and further demonstrated investors’ confidence in Nigeria’s credit reality.
On his part, the Divisional Head of Capital Markets at NGX, Mr Jude Chiemeka, speaking at the event, applauded the listing of the bond, which provides corporates with the opportunity to raise capital.
“The listing of this transaction on our platform not only allows for a more liquid capital market, but it also shows our capacity to facilitate large transactions towards enabling a more robust ecosystem,” Mr Chiemeka said.
He further noted that NGX remains committed to fostering similar transactions through its digital gateways such as this and a confident market where corporates and investors can achieve their respective objectives.
Unlisted Securities Market Closes Flat at Midweek
By Adedapo Adesanya
Trading activities ended in a stalemate on the floor of the NASD Over-the-Counter (OTC) Securities Exchange on Wednesday, with no single price gainer or a price loser at the close of business.
As a result of this development, the market capitalisation of the bourse remained intact at N1.03 trillion, as the NASD Unlisted Securities Index (NSI) also remained unchanged at 743.15 points.
The unlisted securities market closed flat in the midweek session amid low investor appetite for the market, as attention shifted to the fixed-income market, where the Central Bank of Nigeria (CBN) sold treasury bills at the primary market, with the stop rate over 14 per cent.
Data from the bourse showed that the volume of securities traded yesterday was abysmally low as it went down by 99.9 per cent to 8,299 units from the 20.1 million units transacted a day earlier.
Likewise, the value of shares traded during the session dropped to N1.2 million, 97.3 per cent lower than the N44.5 million posted in the preceding trading day.
These transactions were carried out yesterday in nine deals, 75 per cent lower than the 36 deals executed on Tuesday.
Geo-Fluids Plc remained the most traded stock by volume on a year-to-date basis with a turnover of 482.1 million units valued at N544.1 million, UBN Property Plc occupied second place with the sale of 365.8 units worth N309.5 million, while Industrial and General Insurance (IGI) Plc was in third place with the sale of 71.1 million units valued at N5.1 million.
Also, VFD Group Plc ended the session as the most traded stock by value on a year-to-date basis with a turnover of 7.3 million units worth N1.7 billion, Geo-Fluids Plc was in second place with a turnover of 482.1 million units worth N544.1 million, while UBN Property Plc was in third place with the sale of 365.8 million units valued at N309.5 million.
Naira Sells N461.24/$1 at I&E, N764/$1 at P2P, N747/$1 at Black Market
By Adedapo Adesanya
The Nigerian Naira appreciated against the US Dollar in the Peer-2-Peer (P2P) and the Investors and Exporters (I&E) windows of the foreign exchange market on Wednesday, March 30, but depreciated in the black market.
In the P2P segment, it gained N3 against its American counterpart to quote at N764/$1, in contrast to the N767/$1 it was traded on Tuesday as the demand for cryptos, which most traders in this category use the funds to buy, was relatively mild.
In the I&E window or the spot market, the Naira appreciated against the greenback yesterday by 51 Kobo or 0.11 per cent to settle at N461.24/$1 compared with the previous day’s N461.75/$1, according to data obtained from FMDQ Securities Exchange, with the forex turnover put at $74.31 million.
But in the parallel market, the domestic currency depreciated against the US Dollar in the midweek session by N4 to trade at N747/$1 versus Tuesday’s exchange rate of N743/$1.
Also, in the interbank window, the Naira lost N1.93 against the Pound Sterling to sell at N567.68/£1 versus Tuesday’s N565.52/£1, and against the Euro, it slid by N2.25 to at N499.21/€1 compared with the preceding day’s N496.66/€1.
Meanwhile, the digital currency market swayed to the bulls yesterday as most of the tokens tracked by Business Post ended in the green territory amid better-than-expected consumer confidence figures from the United States.
Data from the US Conference Board showed that its monthly survey rose to a reading of 104.2 basis points, better than the 101 mark expected, lifting Bitcoin (BTC) by 4.2 per cent to $28,519.76, as Ethereum (ETH) rose by 0.5 per cent to $1,788.52.
Solana (SOL) grew by 2.1 per cent to $21.08, Dogecoin (DOGE) gained 1.4 per cent to sell at $0.0751, Litecoin (LTC) increased by 0.6 per cent to $90.14, while Cardano (ADA) chalked up 0.5 per cent to quote at $0.3797.
However, Ripple (XRP) dropped 0.4 per cent to trade at $0.5336, Binance Coin (BNB) lost 0.2 per cent to settle at $313.02, and Binance USD (BUSD) and the US Dollar Tether (USDT) traded flat at $1.00 apiece.
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