GCR Affirms Ogun State’s Ratings of BBB+ with Positive Outlook
GCR Ratings has affirmed Ogun State Government of Nigeria’s national scale long-term and short-term issuer ratings of BBB+(NG) and A2(NG) respectively, with the outlook revised to positive from Stable.
The firm stated that the ratings affirmation and the positive outlook on Ogun State Government reflect the strong income growth, which has translated to robust cash flows, improved leverage metrics and a sound liquidity position.
GCR however said currency risk and elevated total debt remain ratings constraint for the state. “Ogun State remains a key contributor to Nigeria’s economy with a diverse economic base spanning manufacturing, agro-processing, services, and trade, all of which positions it as a leading investment destination.
“The state hosts major industrial clusters, including cement, FMCG, and automotive assembly plants, which reinforce its role as a driver of Nigeria’s industrial output. In addition, the completion of the International Agricultural Air-Cargo Terminal is expected to enhance the agricultural value chain in the State”.
GCR said Ogun State also benefits from its strategic location and proximity to Lagos, Nigeria’s commercial hub, strengthening its role as a gateway to other states.
Consequently, its living standards and socio-economic indicators rank above the national average. Rising migration into the state is placing notable pressure on the existing infrastructure, with service deficiencies persistently widening.
Ratings analysts said nevertheless, they note the improved infrastructural spending that is geared towards bolstering economic activity and improve the standard of living.
Ogun state has reported consistent strong IGR progression, reflecting the broad tax base which underpins its limited reliance on volatile federal transfers compared to peers. IGR increased by 38.2% to about NGN194.9 billion in the fiscal year ended 31 December 2024, according to GCR.
The increased IGR came on the back of improved collection efficiency and expanded tax net.
Likewise, the state earned higher value added tax (VAT) inflows from the general price increase and the rebound in economic activity in 2024. Federal transfers were also bolstered by once-off foreign exchange gains and infrastructural receipts from the national government, the ratings note highlighted.
GCR Rating analysts expect a modest increase in total recurrent income in 2025 as the special federal transfers are not expected to repeat. “Beyond 2025, we expect internal revenue generating capacity to strengthen on the back of increased contribution from revenue generating projects”.
Ratings analysts said although recurrent expenses have materially increased over the review period reflecting high inflationary environment and wage increment, operating surplus has remained robust at a margin of 46.8% in 2024 versus 32.9% in 2023, creating fiscal headroom for funding portions of capital projects internally.
Leverage and capital structure remain a rating constraint, despite the overall improvement in leverage metrics, GCR stated.
Ogun State’s gross debt rose to NGN435.5 billion as of December 2024 from NGN377.8 billion in 2023; and NGN289.4 billion in 2022, driven by adverse exchange rate movements, with about 68.1% of total debt denominated in foreign currency.
Ratings analysts said despite the higher debt level, the strong earnings performance supported better leverage ratios: net debt to recurrent income improved to below 60% in 2024 from 130% in 2023, free cash flow coverage of gross debt improved to 63.5% from 23.9%, while net interest coverage remained strong at 9.2x from 11.5x in 2023.
Over the next 12–24 months, GCR analysts said they expect the gearing metrics to be sustained at strong levels barring any escalation in debt or material income underperformance relative to budgets.
Ratings analysts noted that the state capital structure is supported by access to diverse funding sources including concessional loans as well as a long debt maturity profile.
“While foreign currency exposure remains a downside risk we note the relative stability in the foreign exchange market in 2025. That said, a material increase in foreign currency borrowings could weaken leverage metrics and heighten pressure on the rating”.
Liquidity is slightly positive, underpinned by expected strong cash holding of NGN86.4 billion as of December 2026, combined with projected OCF of around NGN231.4 billion in 2026.
“We expect that these liquidity sources would be sufficient to cater to near term maturing debt of around NGN48.2Bn, estimated capex of NGN160.8 billion and the settlement of contractual obligation”.
GCR estimated Ogun State liquidity coverage at above 3x for the 6-month period to 31 December 2025 and 1.8x over the 18-month to 31 December 2026.
Rating analysts stated that days cash on hand was sustained above 50 days as of 30 June 2025 indicating sufficient coverage of recurring spending requirements.
The positive outlook reflects GCR expectation that the state will sustain the recurrent income trajectory while curtailing operational expenses, thus supporting robust cash flows.
This could underpin internal funding of a greater proportion of capital spending and support firmer leverage metrics, according to the rating note.
