GCR Affirms Ondo Issuer Ratings of BBB/A3, Revises Outlook
GCR Ratings has affirmed Ondo State Government of Nigeria’s national-scale long-term and short-term issuer ratings of BBB(NG) and A3(NG), respectively, with the outlook revised to positive from stable.
According to GCR, the affirmed ratings and the positive outlook of Ondo State Government of Nigeria reflect improved assessment of the State’s leverage and liquidity profiles.
“This is underpinned by sustained growth in recurrent revenue and a conservative debt position, which have translated to robust cash flow generation and sound credit protection metrics.
“These strengths are, however, counterbalanced against a modest internally generated revenue (IGR) and relatively high exposure to currency risk, albeit these are long-term credit facilities”
The rating note stated that Ondo State’s business profile is underpinned by its good socio-economic indicators and notable contribution to Nigeria’s national GDP. The State is predominantly agrarian, accounting for the country’s largest share of cocoa exports.
Ondo, an oil-producing state, accounts for about 5% of Nigeria’s crude oil output, in addition to substantial natural gas and bitumen reserves.
GCR said that despite these endowments, economic growth has been structurally constrained by infrastructural deficits necessary for efficient resource utilisation, productivity enhancements, and sustainable wealth creation.
“…we expect major developmental projects such as the proposed oil refinery, bitumen mining, and the deep seaport projects to enhance the State’s economic potential over the long term by diversifying revenue base and attracting private sector participation and stimulating local industrial development.
“Nonetheless, while these projects are positive for developmental outcomes, they are unlikely to drive a material transformation of the State’s internal economic profile over the rating horizon”, ratings analysts said.
“Despite significant improvement in recurrent income, our assessment of Ondo State’s operating performance remains a rating constraint due to sustained dependence on the relatively volatile federal allocations, with the State’s IGR remaining under 30% over the review period”.
Per the budget performance report (BPR) as of 31 December 2025, recurring revenue sustained a solid growth momentum to N346.3 billion in 2025 from N341.5 billion in 2024 and NGN163.8 billion in 2023.
GCR report stated that this is primarily attributable to higher federal transfers arising from higher oil-related receipts, increased VAT income, and foreign exchange gains.
Conversely, IGR remained relatively modest, rising to N53.7 billion in 2024 from N49.3 billion in 2023, with further growth anticipated in 2025 on the back of enhanced tax collections.
On the other hand, ratings analysts said recurrent expenses remained elevated due to increased administrative and personnel costs following the implementation of the new minimum wage.
Notwithstanding this, operating surplus rose to NGN181.4 billion in 2025 from N184.6 billion in 2024 and N25.4 billion in 2023, supporting a notable increase in capital expenditure.
State capital expenditure increased to N122.9 billion from N45.9 billion in 2024. While federal inflows should remain robust over the next 12 months, any material underperformance in income or a spike in recurrent expenditure could exert pressure on operating surpluses and constrain capex implementation.
Leverage and capital structure have shown significant improvements, underpinned by a low debt position and higher income levels, availing headroom for stronger operating cash flows (OCF).
In financial 2025, gross debt declined to NGN119.3 billion, from N138.2 billion in 2024, and from N167.8 billion, largely reflecting the effect of a debt swap arrangement that offset the State’s FGN-related domestic obligations against refund receivables from the federation account.
This, coupled with a substantial cash holding of around N200 billion, supported a net ungeared position in 2025. Further, OCF coverage of gross debt strengthened to 146.2% in 2025 on the back of robust cash flows.
Although net interest coverage remained strong, it moderated to 26.0x in 2025 from 72.6x in 2024 due to a foreign-exchange-induced increase in finance costs.
Over the outlook period, GCR expects modest reversals to the recent improvements in the gearing metrics as the State deploys its cash reserves towards capital projects and potentially increases debt.
Nonetheless, rating analysts expect the leverage metrics to remain defensive, with net debt-to-income sustained below 20% and OCF-to-debt above 100%. We take cognisance of the State’s high foreign currency exposure, but the risks are balanced against the diversified funding base, concessionary terms, and long maturity profile of the loans.
Ondo State’s improved liquidity assessment is supported by a robust cash reserve of about NGN200 billion as of 31 December 2025, as well as GCR-projected strong operating cash flow of NGN177.7 billion and expected grant income of NGN8.5 billion for the financial year 2026.
GCR said these liquidity sources are sufficient to cover near-term obligations, including short-term debt obligations of NGN26.8Bn as of 31 December 2025, capital spending of NGN153.6 billion, and estimated non-interest-bearing liabilities of NGN8.9 billion relating to unfunded pension arrears.
Overall, liquidity coverage is projected at 2x over the 12-month period to December 2026 and 1.4x over the 24-month period to December 2027.
The strong cash buffers and stable operating cash flows provide sufficient headroom for timely debt servicing while supporting capacity to finance capital projects.
The Positive Outlook reflects expectation of sustained recurrent income growth and stronger operating surpluses, GCR said. This is expected to bolster internal capacity for greater capex implementation without excessive debt. Oil Prices Surge over Unresolved Supply Risk
