GCR Upgrades Axxela Ratings, Outlook Positive
GCR Ratings (GCR) has upgraded Axxela Limited’s national scale long-term and short-term issuer ratings to A(NG) and A1(NG), respectively, from A-(NG) and A2(NG) previously.
The rating agency also upgraded the national scale long-term issue rating of Axxela Funding 1 Plc’s NGN16.4 billion series 1 senior unsecured bond to A(NG), from A-(NG) previously; and the NGN11.5Bn series 1 senior secured bond to A(NG)(EL), from A-(NG)(EL) previously.
The outlook on the ratings remains positive, according to GCR, adding that the senior secured bonds rating is based on an estimate of the expected loss in the event of an issuer default and is a function of the estimated probability of default of the issuer and the potential losses that may be incurred.
“As such, this rating carries an “(EL)” suffix. The expected loss rating assigned to the Bonds issued therefore differs from the long-term senior unsecured credit rating of the Issuer”.
GCR explained that the upgrade of Axxela Limited’s ratings follows the above-budget earnings performance, enhanced free cash flows and the concurrent moderation in the leverage metrics to very conservative levels since the financial year ended 31 December 2024.
However, rating analysts noted the potential pressure on liquidity due to the substantial capital outlays expected over the rating horizon coupled with substantial dividend payouts coinciding with rapid expansion.
In 2024, the group repaid the portions of the outstanding foreign currency shareholder loans and converted the balance to redeemable shares.
“While the partial repayment supported a slight reduction in gross debt, we have included the redeemable shares in debt calculations given that they are ultimately repayable and notwithstanding the discretionary nature of the attributable future dividend payments”.
GCR said this notwithstanding, there is notable improvements to the overall leverage metrics despite debt remaining above N100 billion since 2024.
In 2024, the issuer net debt to EBITDA improved to 0.7x from 2.9x in 2023, interest coverage to 66x from 9.2x in the same period and free cash flows coverage of gross debt was bolstered to 125% versus 15.8% reported in 2023.
Ratings analysts said the leverage and cash flow metrics remained at strong levels as of 30 June 2025, but the net operating cash flows are constrained by higher tax payments, compared to the previous years.
“While the group plans to fund most of the expansion capital expenditures for the rest of 2025 from internal cash flows, we expect some debt accumulation in 2026 in line with the pipeline of capital investments.
“Overall, we do not foresee any material deterioration to the gearing profile as a result of new debt given our expectation of robust earnings and cash generation for the outlook period.
“The capital structure is bolstered by the long maturity profile of the debt book, coupled with the fact that the redeemable shares account for a material (34%) portion of our adjusted debt calculations.
“The liquidity assessment has been revised to neutral, mirroring the increasing pressure indicated by higher capital spending plans and investment commitments over the 18-month period to 31 December 2026.
“While capex implementation is being staggered as a result of construction delays due to rerouting of the right of way, we expect substantial expansion in 2026, combined with acquisition-related outflows”, GCR said.
In addition, rating analysts stated that significantly higher dividend distributions are anticipated going forward – in line with expected robust net profits – which, combined with the ongoing expansionary spending plans, could place a material strain on liquidity.
“We estimate the 18-month liquidity coverage at 1.26x, considering the sizable cash holding of about NGN41 billion as of 30 June 2025, coupled with committed unutilised working capital facilities (over NGN53 billion) and projected robust operating cash flows”.
GCR Axxela has sustained strong earnings progression over the five-year period to 2024, driven by a combination of positive foreign currency translation effect on the Naira earnings and modest uptick in volumes of gas distributed.
Although the group attained a new peak of NGN466.6 billion in revenue in 2024, growth slowed in H1 2025 and lagged budgets as the exchange rates strengthened above the budgeted benchmark and the expected additional offtake decelerated due to project delays.
However, rating analysts orecast a return to strong growth levels in 2026 on the back of additional inflows from the completion of the ongoing projects coupled with an expansion of the customer base.
Earnings margins rebounded to 22.4% in H1 2025, outpacing the review period average of 18.7%, underpinned by tighter cost controls and increased scale efficiency.
“We expect the foreign currency invoicing versus Naira-based expenses to support relative stability in the margins over the outlook period”, GCR said.
The inherent flexibility via price escalation embedded in the gas sales contracts could also provide some buffers against future margins compression.
Axxela remains a leading Nigerian private gas distribution group, with an extensive gas pipeline network coverage of over 300km and a diversified customer base.
The group’s rapidly evolving operational scale, strong brand and established relationships with major gas suppliers has facilitated trade with blue-chip corporates and underpinned cross-border sales.
The group remains exposed to key supplier risk given the inherent dominance of NNPC Gas Marketing Company in the gas supply market but has made some efforts at onboarding other alternative smaller suppliers.
In addition to ongoing plans to expand the pipeline network by additional 200km over the medium term, the group is increasing its operations in the power value chain including power generation and distribution (via minority interests in Eko Electricity Distribution Plc).
Through a special purpose vehicle namely Axxela Funding 1 Plc, incorporated and sponsored by Axxela, the latter has raised two bonds under two separate bond issuance programmes of NGN50 billion each, registered by the Securities and Exchange Commission.
The group’s existing bond issuances comprise NGN11.5 billion series 1 senior secured bonds (secured bonds) and NGN16.4 billion series 1 senior unsecured bonds (unsecured bonds) raised in May 2020 and April 2024, respectively.
The secured bonds are direct, irrevocable and senior secured obligations of the issuer, and at all times rank pari passu with other similarly ranking obligations of the issuer and without any preference among themselves.
The secured bonds mature in 2027 and have a coupon rate of 14.3%.
GCR said the security on the secured bond is created over Axxela’s trade receivables due from its take or pay contracts, held in trust under an existing security deed, in addition to the assets pledged by Axxela (sponsor).
Rating analysts said the existing receivables are not sold off to any entity, neither will the receipts on future receivables be ring-fenced for the payment of the bond obligations.
“We consider the trade receivables as part of the working capital available for day-to-day operations of the obligors, which have been factored into the long-term corporate ratings accorded to the sponsor”.
Thus, recoveries would be in line with the corporate recovery prospects in a default scenario. As such, the secured bonds bear the same default risk as its sponsor.
“The unsecured bonds constitute direct, unconditional, senior, irrevocable, unsubordinated, and unsecured obligations of the issuer, backed by an irrevocable and unconditional undertaking of the sponsor, the co-obligor and the note issuer, and shall rank pari passu without any preference among themselves.
“The bonds have a coupon of 21% and a tenor of ten years with a legal maturity date of 2034.
“Given that Axxela offers timely and full coverage of all payments due to the bondholders, under the series 1 senior unsecured bonds through the deed of undertaking, the bonds bear the same default risk as its sponsor and would reflect similar recovery prospects to senior unsecured creditors in the event of a default.
“As such, the long-term issue rating of the series 1 senior unsecured bonds is equivalent to the sponsor’s long term senior unsecured corporate rating.
“We have reviewed the trustees report dated 2 July 2025 and note that Axxela has complied with the bonds’ transaction terms and conditions in respect of the bond’s payment obligations2.
The positive outlook is based on GCR analysts’ expectation of sustained growth in earnings and cash flows that offset potential rise in debt. This is expected to support the leverage metrics at sound levels even if debt doubles over the outlook period.
