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GCR GLOBAL CREDIT RATING CO. Local Expertise * Global Presence Delta State. Marc Joffe firstname.lastname@example.org Adebisi Ajiboye email@example.com Nigerian State Government Analysis Security class Rating Scale Currency Rating Expiry Date Rating Watch Short term National Naira Naira Al 07/2006 07/2006 Yes Long term National A Fundamentals Delta State, one of 36 Nigerian states, has a population of about 3.7 million people and a population growth rate of around 2.8%. The state produces around 30% of Nigeria's total oil output, and accordingly, is responsible for the generation of a significant proportion of the country's foreign currency inflows. Rating rationale The rating is supported by the following key factors: • Delta State's strategic importance as the largest oil producing state in Nigeria. • In addition, the State's economy has large potential for development due to its varied natural resources, while the State Government is focussing on the development of the economy and sources of internally generated revenue. • The State has historically funded the bulk of its capex requirements internally, while the high level of capex to total income was favourably considered. In addition, the discretionary nature of this expenditure serves to enhance the financial flexibility of the State. • . Gross gearing remains at manageable levels. • . The reduced proportionate spend on staffing was positively considered. The rating is constrained by the following key factors: • The State's considerable dependence on federally allocated revenue, with internally generated revenue accounting for a low 11 % of total income. In this regard, the State is exposed to potential changes in the Federation Account. • Furthermore, as the majority of the State's revenue is essentially derived from oil production, it is exposed to fluctuations in the international oil price, leading to low predictability of federal allocations. • Liquidity levels at year end F04 were significantly weaker than in the prior year, with days cash on hand falling to a low 15 days (F03: 52 days), while the "take-on" ofN17bn of debt from the old Bendel State has increased gearing. GLOBAL CREDIT RATING CO. Financial structure Total debt increased for a fifth consecutive year, by 21 % to N29.2bn in F04, and comprised of short term debt ofN8.1bn (28%) and long term debt ofN21.1bn (72%). Included in total debt is an amount ofNl7.6bn (F03: NI7.2bn) that is classified as external or foreign debt. Also included in total borrowings are internal loans of N8.1bn (F03: N3.6bn), which comprises domestically raised borrowings from various banks, and is effectively utilised as bridging finance pending the receipt of federally allocated revenue. Total debt to total income decreased to 34% in F04, from 38% in F03. Net debt to total income was largely unchanged at 31.5%. Cash and cash investments decreased significantly, by 57% to N1.8bn in F04, covering short term debt only 0.22x (F03: 1.18x). Furthermore, days cash on hand fell to just 15 days, well below the level of 52 days reported previously. However, the state maintains adequate credit facilities, and borrows in the money markets to fund cyclical cash deficits, which mitigates liquidity risk to a degree. Delta State funds the bulk of its capital expenditure via operating surpluses. Potential risks • Delta State's economy is dominated by two primary activities, namely agriculture and oil production. As approximately 70% of the workforce is involved in small scale farming activities, adverse climatic conditions could threaten the livelihood of the majority of the population and place the State under significant financial strain. • The State's revenues are significantly exposed to fluctuations in the international oil price, which could have a negative impact on its income base in the event of a severe downturn. The recent spike in the international oil price should, however, benefit the State in the medium term. • The political situation has deteriorated since 2005, and would appear to have impacted negatively on the image of Delta State (with a perceived low level of confidence of businesses in the State). This document is confidential and issued for the information of clients only. It is subject to copyright and may not be reproduced in whole or in part without the written permission of Global Credit Rating Co. ("GCR "). The credit ratings and other opinions contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. No warranty, express or implied. as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such rating or other opinion or information is given or made by GCR in any form or manner whatsoever. 1 Background Political and legislative framework Delta State, which was formed out of the defunct Bendel State in 1991, is divided into 25 local government areas, After gaining independence ITom Britain in 1960, which operate under 3 senatorial districts. The state has Nigeria was ruled for twenty-eight of the following a total area of approximately l8,000km2, of which forty-five years by a succession of military nearly 6,000km2 is mangrove swamp, situated along the governments. However, in May of 1999, the state's l60km long coastline. The capital, Asaba, is democratically elected government of President situated along the Niger River which forms the south Olusegun Obasanjo assumed power, and was re-elected eastern border. to a second term in May 2003. Demographic composition and economic structure Under the federal system, there are 3 tiers of government, namely the Federal, State and Local The total population of the state is estimated at around governments. Since 1999, a fiscal decentralisation 3.7 million in 2004, growing at a rate of approximately model, aimed at gradually empowering the lower tiers 2.8% per annum mirroring the national average. The of government has been in place. Each tier is majority of Deltans live in urban areas, and the responsible for the provision of various government population density of the state estimated in 2004 at services and has the authority to collect and retain 207.3 personslkrn2, is noticeably higher than the revenues under their respective jurisdictions. The major national average of 123 personslkrn2. The population sources of revenue currently available to the Federal and under the age of 16 makes up 47% of the total State Governments, as well as their respective population of the state. obligations, are reflected in the table below. Federal Government State Government The adult literacy rate at 61.3% (down from 65% in Duties 2002), compares favourably to the national average of • Housing • Creation of Local 55%. • Currency & External Government Affairs • Legislature Healthcare remains a major issue facing the State • Legislature • Education Government, particularly in rural areas. As at 2003, • Security • Housing Delta State operated 37 public hospitals, compared to 26 • Electricity Supply • Water & Electricity in 1998. Currently, Delta has an infant mortality rate of • Infrastructure Expansion Supply 48 deaths per 1,000 live births, compared to 114 deaths & Maintenance • Road Construction & per 1,000 live births in 2001. Notwithstanding the • Distribution to State and Maintenance improvement, this is considered to be very high by Local Governments • Health international standards, with Britain reflecting a figure Revenue Sources of below 5. The average life expectancy is 55 years, • Company Tax • Federal Account approximating the national average. A contributing • Oil Sales • Personnal Income Tax* factor to the poor health statistics is the fact that less • VAT • VAT Allocation than 70% of the population have access to potable water. • Mineral Royalties & • Derivation Income Rents • Licences and Fees* A major economic activity of the State is oil as Delta • Duties State produces around 30% of Nigeria's total oil output (of around 2.2 million barrels per day), making it the *Collected by States. Other revenues are collected and held in trust by the Federal Government. country's second largest producer behind Akwa Ibom State. Around 80% of the Delta State's oil reserves are 15% of V AT is retained by the Federal Government, onshore, while 20% are offshore. As such, the bulk of whilst State and Local Governments are apportioned the the State's revenue is derived from the oil and gas sector. remaining 50% and 35% respectively. In addition, the 9 oil-producing States receive derivation income, calculated Delta's topography and climate make it ideal for many according to oil production levels. In this regard it is noted types of agriculture. Cassava, yam and maize are the that the new Onshore/Offshore Abrogation Act will result main food crops produced, while oil palm and rubber are in a major change in the derivation income apportioned to the predominant cash crops. Although growth in the States with offshore oil revenues. The new law should Delta economy has been dominated by nonagricultural materially increase Delta State's total derivation income, in sectors, as much as 70% of the population make a living spite of the fact that the majority of its oil production is fi:om agriculture (90% of whom are engaged in onshore. subsistence farming, with the remaining 10% engaged in large-scale commercial farming activities). Although the Federal revenue ( excluding VAT and oil sales revenue) is government is encouraging growth and modernisation in currently distributed as follows: this sector, through subsidies and various incentive • 48.5% is retained by the Federal Government; . 24% is programs, the planned agric spending in 2005 at N1.4bn distributed to the States; was just 2% of the N69bn capital expenditure budgeted • 20% is allocated to Local Governments; and for the period. • . 2 • 7.5% is retained by the Central Government as Income and expenditure special funds (0.5% of this is held in the federal A five year financial synopsis is reflected at the back of this stabilisation account). report and brief comment follows hereafter. The financial statements are prepared using the cash basis of accounting. Following a Supreme Court ruling nullifying the Cognisance is taken of the fact that the notes to the balance aforementioned distributions in 2002, new revenue sheet for 2003 and 2004 have not been supplied by allocation is currently before the National Assembly for management, preventing detailed analysis of fund final approval. If approved, the Federal Government movements and the accuracy thereof. In addition, the 2004 would receive 46.63%, whilst the State and Local financial statements remain subject to audit. Governments would receive 33% and 20.37% Budget Actual Variance respectively. Nm F04 F04 % Internally generated Legal considerations 8,020 9,223 15.0 revenue The legal framework regarding some aspects of Total federal allocations 49,184 75,316 53.1 government is somewhat underdeveloped, although VAT 2,298 2,466 7.3 considerable inroads have been made over the past few years. The key legal issues that impact on the credit Total income 59,502 87,005 46.2 quality of State Governments are as follows: Personnel (I 6,4 10) (15,419) (6.0) • The irrevocable standing payment order ("ISPO") Overheads (I 0,890) (25,184) 131.3 (security utilised by several States, including Akwa Other costs (3,909) (3,228) (I 7.4) Ibom, Delta and Lagos State) was enforced in a landmark ruling by the Federal High Court in Operating surplus 28,293 43,175 52.6 February 2003, underpinning the value of this form Capex (34,892) (40,967) 17.4 of credit enhancement. Net Surplus (Deficit) (6,599) 2207 n.a. • The regulatory requirement of the Securities and Total internally generated revenue increased by 16% to Exchange Commission prohibits States from N9.2bn in F04, and was mainly comprised of income taxes having borrowings of more than 50% of the (88%). Delta State's statutory allocation increased previous financial year's total revenue. significantly in F04, by 51 % to NI6.5bn. Derivation income • Currently, there is no formal legislation relating to jumped to N56bn, accounting for 75% (F03: 76%) of the external borrowing by State Governments, and State's federal revenue and 65% of total income for the year although legislation is expected, the timing remains (F03: 67%). Accordingly, total income increased by 37% to uncertain. However, Federal Government approval N87bn in F04, of which 11 % (F03: 12%) comprised is required prior to the procurement of external internally generated revenue and 89% (F03: 88%) federal loans, whilst public issues of long-term debt distributions. Notwithstanding the strong growth of instruments are governed in terms of the internally generated revenue over the review period, the regulations of the local financial markets. State remains highly dependent on its statutory allocation, while derivation income is potentially very volatile (as it is Political Factors exposed to oil price movements). The Federal Government remains dominant in politics and government finances, despite the stated decentralisation objectives. The debate regarding the disparity between income and expenditure at the various levels of government continues and this is expected to result in a change in the allocation of funds in the short term. In this regard it is noted that nearly 60% of public spending occurs at State and Local Government levels, whilst combined they receive less than 50% of public revenue allocations. Furthermore, most States do not have significant internally generated revenue sources, leaving them highly financially dependant on the Federal Government. Additional political factors include: • The relative infancy of democracy and the concomitant fragility of the political system; • The likelihood of restructuring defaulted public debt is increased significantly by the nature of Personnel costs in F04 increased by a modest 8% to public entities (and public assets); and N15.4bn, well below the rate of inflation of roughly 17% for • Historically, the Federal Government has provided the year. Positively, the growth in personnel costs has support to States experiencing financial slowed down significantly in each year over the review difficulties, although this does not necessarily period, from a high of 139% in FOO to current levels. As imply that States can expect support going such, staff costs comprised a considerably lower 35% of forward. total recurring expenditure in F04, from -' 3 3 48% previously. While this is still considered fairly high, that on several occasions the debt repayments were it compares favourably with the average of just below deducted from the allocation but not paid by the Federal 30% for the South African municipal sector as a whole. Government (particularly during the military era) and this Overhead costs, however, experienced a significant 94% remains an issue of contention between many States and the increase to N25.2bn in F04, overtaking personnel costs as Federal Government (the Federal Government refutes this the largest recurrent expenditure item. Accordingly, total position). Apparently, part of the foreign debt is in the recurrent expenditure increased 48% to N42.9bn in F04. process of being cancelled. The interest expense also evidenced a large increase in F04, amounting to N92m from Nl6m previously. Delta Internal debt of N8.1bn (F03: N3.6bn) comprises State posted a sizeable N43.2bn operating surplus for the domestically raised borrowings from various banks, and is year (F03: N34bn). It is noted that the State has posted effectively utilised as bridging finance pending the receipt operating surpluses throughout the review period, leaving of federally allocated revenue. These loans are also paid substantial funds to be applied to capital expenditure down from time to time as revenues are collected or receipts programmes. Total capital expenditure increased by 48% obtained. The Redeemable Development Loan Stock of to N4lbn in F04, accounting for 48% of total expenditure N3.5bn relates to the 1st Delta State floating rate for the year (F03: 48%). Cognisance is taken of the fact redeemable revenue bond (originally issued in F02). The that the State has historically funded capital expenditure bond is secured by an ISPO against the State's share of the with operating surpluses (excluding FO 1). revenue credited to the Federation account. In the absence of the maturity profile of Delta State's debt, GCR has classified the external debt and the bond issue as long term debt, while given the temporary nature of the internal loans, these are assumed to be short term. Accordingly, short term borrowings represented 28% of total borrowings, whilst cash and equivalents, which decreased by 57% to N1.8bn, covered short term borrowings a considerably lower O.22x (F03: 1.18x). Furthermore, days cash on hand fell to just 15 days, well below the level of 52 days reported previously. As such, taking into account our maturity assumptions, and given that a portion of the external debt could be redeemable in the short term, a high degree of liquidity pressure appears evident. Financial profile The State exhibited investments of N18.8bn at the end of A regulation was passed in early 2003, which F04. Based on the investment schedule provided by standardised financial statements of states and local management, it appears that the investments are comprised authorities. The impact of the ruling was that each state entirely of both listed and unlisted entities. Of this, a (and local authority) was required to fully disclose all significant exposure is to Econet Wireless (Nig) Ltd details of its financial position. Prior to the legislation, (roughly 65%), a listed entity. If it were possible to such disclosures were very uncommon. In this regard, liquidate this investment timeously, this would likely ease total interest bearing debt and total loan stock have only liquidity pressure (although cognisance is taken of the been included in the financial statements of Delta State considerable concentration risk). for F03 and F04. The State evidenced a decrease in gross gearing, which The composition of debt (as supplied to GCR for F04 and fell from 38% in F03 to 34% in F04. This is almost in line restated for F03) is provided as follows. with the South African municipal average of 32%. On a Total Debt(Nm) F03 F04 net basis, gearing was largely unchanged at a high 32% External Loans 17,169 17,608 (South African municipal average: 7%). Internal Loans 3,556 8,135 Redeemable Development Loan Stock 3,500 3,500 Total 24,225 29,243 Delta State exhibited total debt of N29.2bn in F04, compared to a restated level ofN24.2bn for F03. Of this amount, N17.6bn (F03: N17.2bn) has been classified as external or foreign debt (mainly sourced from the Paris Club), that was inherited from Old Bendel State (from which Delta State originated). The Federal Government (the guarantor of these foreign loans) deducts the loan amounts from the monthly statutory allocation of Delta State in order to effect payment. It appears, however, 4 Capital expenditure is budgeted at N69.1bn in F05, being significantly higher than the level of N41bn achieved in F04. In this regard, capex as a percentage of total income is budgeted at a high 60% in F05, compared to levels of 47% in F04 and 43% in F03. While these levels are well above the average displayed by more developed countries, cognisance is taken of the significant capex spend required to address the severe infrastructural concerns of the State going forward. The State's capital expenditure programmes largely revolve Operating estimates and year to date performance around economic development and the creation of Total income is budgeted to increase by 33% to Nl16bn in employment. The following table clearly illustrates the F05, with total federal allocations (including VAT) State's reliance on internally generated income (primarily expected to comprise 90% of this amount (F04: 89%). federal allocations) to fund its capex. As such, the State Personnel costs are forecast at N18.3bn, a 19% increase remains considerably exposed to potential changes in the over F04 and 39% of total expenditure for the year (F04: Federal allocation formulae or any disruptions in the 35%). Overhead expenditure is budgeted 18% lower statutory allocation flows (which would likely result in than F04, although based on the year to date performance severe liquidity problems, as well as exert strain on these costs could be well below this level by year end. existing infrastructure). Capital Expenditure YTD Budget % of YTD Budge % of (Nm) June F05 Total Nm June t F05 Total F05 F05 By Category Internally Generated Revenue 4,534 11,770 38.5 Economic Sector 7,520 25,680 29.3 Social Sector 5,045 15,259 33.1 Total Federal Allocations 49,891 102,04 48.9 Environmental Sector 6,334 22,292 28.4 VAT 1,452 7 66.5 General Administration 2,663 5,856 45.5 2,183 Total Capex 21,562 69,087 31.2 Total Income 55,877 116,00 48.2 The immediate focus of Delta State, as in prior years, is to keep spending within budget while ensuring that economic 0 development projects are executed within the contractual Personnel 8,648 18,288 47.3 periods in order to aid productive employment generation Overheads 5,888 20,547 28.7 activities. Other Costs 7,543 8,078 93.4 Specifically, Delta State is focussing on the following key Operating Surplus 33,798 69,087 48.9 projects in the short to medium term. Capex 21,562 69,087 31.2 • Roads and bridges are now being provided to the Net Surplus(Deficit) 12,236 0.0 n.a riverine areas of the State, despite the fact that the area encompasses extremely difficult terrain. Total income amounted to 48% of the full year budget at • The national electric power grid is being extended to 30 June 2005, while total expenditure accounted for a the area at a total cost of N4.8bn. The major lower 47%. Accordingly, Delta State is reflecting a industrial area of the State (the Sapele/Warri axis) is N33.8bn operating surplus, or 49% of the full year budget. also being provided with adequate power supply. Capital expenditure spending for the half year amounted to • Delta State is investing in the maritime activities to only 31 % of the full year budget and is thus unlikely to be create jobs and to leverage its fishing industry for met. Capex to total income amounted to 39%. additional revenue from fish, crab and shrimp exports. In this regard, the State is empowering Management accounts at the end of June 2005 indicate that riverine dwellers to acquire boats on a subsidised cash and cash equivalents amounted to N3.6bn, up from basis. N1.8bn in F04. Total debt was N3.2bn lower than F04 at • Additional investment is being made on water N26bn, with the decline a function of a N2.4bn decrease in transport with Delta Water Ways Authority. external loans (to N15.2bn) and a NO.8bn decrease in • Modem shopping plazas have been erected in 3 internal loans (to N7.3bn). Cash holdings covered short major towns, including the State Capital Asaba, term borrowings (internal debt) 0.49x. Investments with the which was constructed at a total cost ofN1.9bn. In MOFI amounted to N20.7bn for the half year. According to addition, a specialist hospital at the medical college management, the N3.5bn bond issue was redeemed of Delta Sate University is being constructed at a subsequent to 30 June 2005. Net debt to total income cost of N7bn. amounted to approximately 20% for the half year, a . noticeable improvement over F04 (32%). • Investment in agriculture and agro-processing capacity Capital expenditure (in conjunction with the private sector) forms the basis of an economic development programme, which will 5 initially focus on 3 key areas, namely Cassava crops, explored, including development financial institutions and Palm Oil and Shrimp farming. Delta State has a 3 year the private sector to assist with development. exit plan, which would result in the ventures being entirely privately owned and managed. It is noted that the State has acquired over 17,000 hectares of land from 16 communities, which will be further leased to commercial farmers. Future prospects Expected loss The local economy is extremely dependent on oil production, with the State's share of statutory allocated Expected loss is a function of loss severity and probability revenue largely derived from oil revenue accrued to the of default (default frequency). Owing to the nature of Federal Government. In addition, given the fact that only public assets, the likelihood of creditors accepting the around 11 % of revenue is generated internally, restructuring or refinancing of public sector debt (in order Delta State's dependence on its statutory allocation is of to at least partially recover the investment) is concern. As such, if oil production were disrupted, comparatively high. This, coupled with government's especially for extended periods, this could have a negative desire to maintain good standing in the financial markets, impact on the State's underlying revenue base. significantly decreases the average loss severity of public sector debt, relative to the private sector. Furthermore, In order to alleviate the aforementioned risks and diversify State government debt issues often include additional its reliance on oil revenue, the State Government is security to bondholders in the form of the right to first endeavouring to develop and strengthen internally allocation of the State's federally allocated revenue. generated revenue sources in order to make it more Accordingly, the ultimate expected loss of public sector autonomous. The economic base is being diversified creditors is significantly lower than in the private sector. largely into agriculture and fisheries, to provide additional internally generated income and employment. The State is also developing various alternate ways of enhancing its internal revenue base, including: • Legislative approval is currently pending in Delta State's House of Assembly, which if successful would enable the State to collect rates from organisations that operate businesses in Delta State, but are not resident in the State. • The implementation of the Delta Internal Revenue Card Scheme (a project to bring many individuals and small business enterprises in the informal sector into the tax net) is now being implemented and is expected to generate significant additional revenue. The State's IT infrastructure was recently upgraded, which has served to enhance revenue collection, the budgeting process and capital project implementation. Notwithstanding the progress made by Delta State to date, the development challenges facing it are significant. While funds from the federation account continue to grow rapidly, these remain inadequate in order to address key infrastructural projects. As such, alternative funding sources apart from increasing the revenue base need to be 6 Delta State 7 (Naira in millions except as noted) Year End: 31 December Income Statement 2000 2001 2002 2003 2004 Income tax 2,764.1 4,465.7 5,147.6 6,364.8 8,114.0 Other internally generated revenue 705.3 2,234.5 233.0 846.7 1,039.0 Interest and investment income 281.0 251.0 236.2 711.7 69.7 Total internally generated revenue 3,750.4 6,951.3 5,616.8 7,923.2 9,222.6 Statutory allocation 6,633.7 6,594.5 9,026.4 10,951.9 16,495.7 Value added tax 960.8 1,605.7 1,852.7 2,311.0 2,465.6 Derivation income 18,714.6 26,896.1 29,307.1 42,511.0 56,233.6 Other federal income 2,570.0 509.8 1,021.0 0.0 2,587.1 Total income 32,629.6 42,557.3 46,824.0 63,697.1 87,004.6 Recurrent expenditure (13,174.0) (21,430.4 ) (24,194.3) (29,060.2) (42,945.3) Appropriations (313.3) (319.8) (520.8) (631.4) (793.1) Interest expense (272.2) (305.7) (127.9) (16.4) (91.6) Operating surplus (deficit) 18,870.1 20,501.3 21,981.0 33,989.0 43,174.6 Capital expenditure (16,521.3) (36,485.9) (20,647.9) (27,607.5) (40,967.4) Net surplus (deficit) 2,348.8 (15,984.6) 1,333.0 6,381.6 2,207.2 Capital Receipts 2,105.1 14,182.0 (416.7) 1,638.5 (1,605.3) Balance Sheet Funds, reserves and accumulated surplus 20,277.2 38,359.4 3,158.6 3,264.6 5,471.8 Long term interest bearing liabilities 0.0 3,500.0 15,274.7 20,669.4 21,107.9 Short term interest bearing liabilities 940.6 4,306.9 2,854.4 3,555.6 8,134.6 Total interest bearing liabilities 940.6 7,806.9 18,129.1 24,225.0 29,242.5 Non interest bearing liabilities 548.3 603.5 8,999.4 0.0 0.0 Total liabilities 21,766.1 46,769.9 30,287.1 27,489.7 34,714.4 Fixed assets 11,999.5 28,504.2 18,129.1 7,559.6 14,176.9 Investments 614.8 8,192.3 7,953.4 15,590.4 18,760.6 Cash and cash equivalents 4,859.7 2,948.9 3,829.6 4,200.4 1,807.3 Other current assets 4,292.1 7,124.5 375.0 139.3 (30.4) Total assets 21,766.1 46,769.9 30,287.1 27,489.7 34,714.4 Key ratios Demographics Population growth 2.8 2.8 2.9 2.2 2.8 Credit Protection Measures Total debt: total income 2.9 18.3 38.7 38.0 33.6 Net debt: total income Capex : (12.0) 11.4 30.5 31.4 31.5 total income 50.6 85.7 44.1 43.3 47.1 Efficiency Total revenue growth 366.4 30.4 10.0 36.0 36.6 IGR growth 55.1 85.3 (19.2) 41.1 16.4 Total expenditure growth (including capex) 292.6 93.3 (22.3) 26.0 47.9 Personnel cost growth 138.8 47.1 21.8 13.8 7.7 Capex growth 627.9 120.8 (43.4) 33.7 48.4 IGR : Total revenue 11.5 16.3 12.0 12.4 10.6 Non discretionary expenditure: Total expenditure 45.4 37.7 54.6 51.8 51.7 Non discretionary expnditure: IGR 366.9 317.3 442.3 374.9 475.2 Personnel cost: Total expenditure 51.0 46.8 50.7 48.2 35.2 Interest charge: Total expenditure 2.0 1.4 n.a. 0.1 0.2 Leverage Total liabilities : Total income 4.6 19.8 57.9 38.0 33.6 Total income: Total debt 34.7 5.5 2.6 2.6 3.0 Operating surplus: Total debt 20.1 2.6 1.2 1.4 1.5 IGR : Short term liabilities 4.0 1.6 2.0 2.2 1.1 Cash: Short term libilities 5.2 0.7 1.3 1.2 0.2 Days cash on hand 128.9 48.8 56.3 51.6 15.1 Cash: Interest charge 17.9 9.6 29.9 255.9 19.7 7 GCR GLOBAL CREDIT RATING CO. RATING DEFINITIONS Local Expertise * Global Presence Long Term Debt Rating Scale Investment Grade A1- High certainty of timely payment. Liquidity AAA Highest credit quality. The risk factors are factors are strong and supported by good negligible, being only slightly more than for risk free government bonds. fundamental protection factors. Risk factors are very small. AA+ Very high credit quality. Protection AA factors are very strong. Adverse changes AA- in business, economic or financial conditions Good Grade would increase investment risk although not A2 Good certainty of timely payment. Liquidity significantly. factors and company fundamentals are sound. Although ongoing funding needs may enlarge A+ High credit quality. Protection factors total financing requirements, access to capital A are good. However, risk factors are more markets is good. Risk factors are small. variable and greater in Aperiods of economic stress. Satisfactory Grade BBB+ Adequate protection factors and A3 Satisfactory liquidity and other protection BBB considered sufficient for prudent factors qualify issues as to investment grade. BBB investment. However, there is considerable However, risk factors are larger and subject to variability in risk during more variation. economic cycles. Non-Investment Grade B Speculative investment characteristics. Liquidity Non-investment grade is not sufficient to insure against disruption in BB+ Below investment grade but capacity for BB debt service. Operating factors and market timely repayment exists. Present or prospective access may be subject to a high degree of BB financial protection factors fluctuate according variation. to industry conditions or company fortunes. Default Overall quality may move up or down C Issuer failed to meet scheduled principal or frequently within this category. interest payments. B+ Below investment grade and possessing B risk that obligations will not be met Claims Paying Ability Ranting Scale B when due. Financial protection factors AAA Highest claims paying ability. The risk factors will fluctuate widely according to economic are negligible. cycles, industry conditions and/or company AA+ Very high claims paying ability. Protection fortunes. AA factors are strong. Risk is modest, but may vary CCC Well below investment grade securities. AA- slightly over time due to economic and/or Considerable uncertainty exists as to timely underwriting conditions. payment of principal or interest. Protection A+ High claims paying ability. Protection factors factors are narrow and risk can be substantial A are above average although there is an with unfavourable economic/industry A- expectation of variability in risk over time due to conditions, and/or with unfavourable company economic and/or underwriting conditions. developments. BBB+ Adequate claims paying ability. Protection DD Defaulted debt obligations. Issuer failed to meet BBB factors are adequate although there is scheduled principal and/or Interest payments. BBB- considerable variability in risk over time due to Short Term Debt Rating Scale economic and/or underwriting conditions. High Grade BB+ Moderate claims paying ability. The ability of A1+ Highest certainty of timely payment. Short-term BB these organisations to discharge obligations is liquidity, including internal operating factors BB- considered moderate and thereby not well and/or access to alternative sources of funds, is safeguarded in the event of adverse changes in outstanding, and safety is just below that of risk- economic and/or underwriting conditions. free treasury bills. B+ Possessing substantial risk that policyholder and AI Very high certainty oftimely payment. Liquidity B contractholder obligations will not be paid when factors are excellent and supported by good B- due. Judged to be speculative to a high degree. fundamental protection factors. Risk factors are CCC Company has been, or is likely to be, placed minor. under an order of the court. GLOBAL CREDIT RATING CO. To find out more aboutGCR’s services and regional office contact details, visit our website at www.globalratings.net L’essentiel de ces informations détaillées peutetre consulté sur notre site 8 www.globalratings.net (et accéder au menu français)
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