Economy
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:
High
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.
Medium
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.
Low
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.
RATING SENSITIVITIES
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.
By Adedapo Adesanya
Seplat Energy Plc will revive hundreds of Nigerian oil wells laying fallow after completing the acquisition of Mobil Producing Nigeria Unlimited (MPNU) from ExxonMobil.
The company said it aims to lift oil output to about 200,000 barrels a day, a move that will help boost Nigeria’s oil production levels, as it aims to reach 2 million barrels per day next year.
The transaction, according to Seplat, “is transformative for Seplat Energy, more than doubling production and positioning the company to drive growth and profitability, whilst contributing significantly to Nigeria’s future prosperity.”
The completion of the Seplat-ExxonMobil deal has created Nigeria’s leading independent energy company, with the enlarged company having equity in 11 blocks (onshore and shallow water Nigeria); 48 producing oil and gas fields; 5 gas processing facilities; and 3 export terminals.
Recall that the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) in October approved the deal as part of a series of approvals, while it blocked Shell’s asset sale of up to $2.4 billion to the Renaissance consortium.
The acquisition of the entire issued share capital of MPNU adds the following assets to the Seplat Group: 40 per cent operated interest in OML 67, 68, 70 and 104; 40 per cent operated interest in the Qua Iboe export terminal and the Yoho FSO; 51 per cent operated interest in the Bonny River Terminal (‘BRT’) NGL recovery plant; 9.6 per cent participating interest in the Aneman-Kpono field; and approximately 1,000 staff and 500 contractors will transition to the Seplat Group.
MPNU adds substantial reserves and production to Seplat Energy; 409 million barrels of oil equivalent (MMboe) 2P reserves and 670 MMboe 2P + 2C reserves and resources as at 30 June 2024 and 6M 2024 average daily production of 71.4 kboepd (thousand barrels of oil equivalent).
Business Post reports that Seplat will be part of the payment this year, and will defer some to next year,
Speaking on the transaction, the Chairman of Seplat Energy, Mr Udoma Udo Udoma commended President Bola Tinubu for supporting this transaction and appreciated the support and diligence of the various ministries and regulators for all the work to reach a successful conclusion.
“We are delighted to welcome the MPNU employees to Seplat Energy. We are excited to begin our journey in a new region of the country, and we look forward to replicating the positive impacts we have achieved within our communities in our current areas of operations.
“Seplat’s mission is to deliver value to all our stakeholders, and we treasure the good relationships we have developed with the government, regulators, communities and our staff.”
On his part, the chief executive of Seplat Energy, Mr Roger Brown, described the acquisition as a major milestone, adding, “I extend my thanks to the entire Seplat team for their hard work and perseverance to complete this transaction.
“MPNU’s employees and contractors have a strong reputation for safety and operational excellence, and I welcome them to the Seplat Energy Group.
“We have acquired a company with one of the best portfolios of assets and related infrastructure in a world-class basin, providing enormous potential for the Seplat Group. Our commitment is to invest to increase oil and gas production while reducing costs and emissions, maximising value for all our stakeholders.
“MPNU is a perfect fit with our strategy to build a sustainable business that can deliver affordable, accessible and reliable energy for Nigeria alongside attractive returns to our shareholders”.
By Adedapo Adesanya
The National Pension Commission (PenCom) is projected to close the year with over N22 trillion in pension assets impacted by challenges like inflation and monetary policies.
This is according to PenCom Director-General, Mrs Omolola Oloworaran, at a press conference in Abuja on Thursday.
She said as of October 2024, the Contributory Pension Scheme (CPS) had 10.53 million registered contributors and pension fund assets worth N21.92 trillion.
Speaking at the conference-themed Tech-driven Transformation Shaping the Pension Landscape, which showcased PenCom’s strategic commitment to innovation, she said that the numbers reflected the agency’s unwavering commitment to fund safety, prudent management, and sustainable growth.
She explained that the pension environment was impacted by the wider economic challenges facing the country, noting that the sector battled multi-year high inflation, Naira devaluation, and the lingering effects of unorthodox monetary policies by the Central Bank of Nigeria (CBN).
Business Post reports that the apex bank hiked interest rates by 875 basis points this year alone to tackle persistent inflation which peaked at 33.8 per cent as of October.
She said that these challenges eroded the real value of pension funds and impacted contributors’ purchasing power.
“To address these issues, the commission has initiated a comprehensive review of its investment regulations.
“It is focusing on diversifying pension fund investments into inflation-protected instruments, alternative assets, and foreign currency-denominated investments.
“The goal is to safeguard contributor savings and ensure resilience against future economic volatility,” she said.
She restated the commission’s commitment to expanding pension coverage, particularly through the advanced micro-pension plan designed to encourage participation from the informal sector using technology.
“This initiative will make it easier for everyday Nigerians to save for retirement, aligning with our vision of inclusive growth and financial stability for all.
“The backlog in retirement benefits for retirees of the Federal Government’s Ministries, Departments, and Agencies (MDAs) will soon be settled.
“The federal government recently disbursed N44 billion under the 2024 budget to settle approved pension rights.
“We are collaborating with the Federal Government to institutionalise a sustainable solution to ensure retirees receive their benefits promptly, eliminating delays,” Mrs Oloworaran said.
She said that PenCom’s technology-driven transformation aimed to make the CPS more accessible, reliable, and sustainable.
“From data management to seamless contributions and regulatory supervision, we are paving the way for a future where the pension industry serves all Nigerians effectively,” she said,
Mrs Oloworaran also said that the e-application portal for pension clearance certificates has replaced the manual processes and enhanced the ease of doing business in the sector.
“Since its deployment, 38,528 pension clearance certificates have been issued. This initiative ensures compliance and secures the future of Nigerians working in organisations that interact with the government,” she said.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange closed flat on Thursday, December 12 after it ended the trading session with no single price gainer or loser.
As a result, the market capitalisation remained unchanged at N1.055 trillion as the NASD Unlisted Security Index (NSI) followed the same route, remaining at 3,012.50 points like the previous trading session.
However, the activity chart witnessed changes as the volume of securities traded at the bourse went down by 92.5 per cent to 447,905 units from the 5.9 million units transacted a day earlier.
In the same vein, the value of securities bought and sold by investors declined by 86.6 per cent to N3.02 million from the N22.5 million recorded in the preceding trading day.
But the number of deals carried out during the session remained unchanged at 21 deals, according to data obtained by Business Post.
When trading activities ended for the day, Geo-Fluids Plc remained the most active stock by volume (year-to-date) with 1.7 billion units sold for N3.9 billion, Okitipupa Plc came next with 752.2 million units valued at N7.8 billion, and Afriland Properties Plc was in third place with 297.5 million units worth N5.3 million.
Also, Aradel Holdings Plc remained the most active stock by value (year-to-date) with 108.7 million units worth N89.2 billion, followed by Okitipupa Plc with 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with 297.5 million units sold for N5.3 billion.
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