GCR Upgrades Ogun State Issuer Rating to A/A1, Outlook Stable
GCR Ratings has upgraded Ogun State Government of Nigeria’s national scale long-term and short-term issuer ratings to A(NG) and A1(NG), from BBB+(NG) and A2(NG), respectively, with a stable outlook.
The upgrade of Ogun State Government of Nigeria’s rating reflects sustained tax-driven improvements in recurrent income, leading to robust cash flows, solid leverage metrics, and a stable liquidity position.
However, the ratings are constrained by high foreign currency debt risk and sustained elevation of gross debt. Ogun State’s business profile is bolstered by a diverse and increasingly industrialised economy encompassing manufacturing, agro-processing, services, and trade, positioning the state as a prominent investment destination.
GCR said Ogun State’s status as an industrial hub is enhanced by significant clusters in cement, FMCG, and manufacturing, alongside growing technology-enabled services that contribute to economic output and employment.
The State’s strategic location near Lagos, Nigeria’s commercial centre, facilitates access to major markets, transport corridors, and regional trade routes.
The operationalisation of the Agro-Cargo Airport further strengthens Ogun State’s logistics and agricultural value chain, while ongoing developments, including a seaport, are expected to enhance connectivity and attract future investments.
Rating analysts acknowledged that Ogun State’s favourable socioeconomic indicators and expanding economic activity continue to bode well for the ratings.
The expanding economic base continues to support strong income growth, driven by a widening tax base. Internally generated revenue (IGR) increased by 22.3% to approximately NGN238.5 billion in 2025, aided by improved tax collections and revenue mobilisation.
Rising prices also boosted VAT collections by 30% to NGN93.8 billion in 2025 (2024: NGN72.1 billion). However, total recurrent income declined to NGN494.4 billion in 2025 (2024: NGN510.6 billion), mainly due to the non-recurrence of once-off federal transfers recorded in the prior year.
In addition, recurrent expenditure rose by 10.4%, primarily due to increased personnel costs following the full implementation of the new minimum wage.
Overall, the state’s operating surplus remained sound, reflecting operational efficiency and the ability to fund a sizable portion of its development programme internally.
“We expect continued robust operating performance, driven by sustained IGR growth, improved revenue collection through technology-enhanced processes, and the implementation of initiatives aimed at improving the business environment and attract further investments”.
This, coupled with effective expenditure management, should support a sustained operating surplus and the capacity to fund higher capital expenditure, although we remain cautious about the growth outlook due to collection inefficiencies associated with election cycles.
Ogun State’s leverage and capital structure represent the major rating uplift factor, given the sustained improvements in leverage metrics, GCR said in the note. This is driven by strong earnings growth and improved cash generation, which continue to support its debt-servicing capacity.
Gross debt rose by 7.8% to NGN470.3 billion as of 31 December 2025 primarily due to adverse exchange rate movements, with approximately 80.1% of total debt denominated in foreign currency.
However, the higher debt level was offset by the strong earnings performance supporting net debt to recurrent income at 81.7% in 2025 (68.2% in 2024) on the back of improved earnings.
The state’s free cash flow coverage of gross debt remained strong at above 50% in 2025 from 63.5% in 2024 on the back of strong operating cash flow and net interest coverage improved to 13x (from 9.2x in 2024), as improved earnings outpaced the impact of higher finance charges.
Over the next 12 to 24 months, rating analysts expect gearing metrics to remain strong, barring any debt escalation or significant income underperformance relative to budgets.
The capital structure is supported by diversified funding sources, mostly concessional loans and a long-term debt maturity profile. While foreign currency exposure poses downside risk, the naira’s relative stability in 2026 mitigates further pressure on leverage.
“We anticipate that stronger operating performance and continued debt repayments will support improved leverage metrics, although any substantial increase in foreign currency borrowings could weaken the profile and pressure the rating”.
Ogun State’s liquidity remains positive, underpinned by an estimated robust cash reserve of NGN122.5 billion as of June 2026, alongside projected strong operating cash flow of approximately NGN552.5 billion to 2027.
Expected liquidity sources include grant income of NGN35.4 billion, stressed by 60% relative to the state’s budget.
These liquidity sources are expected to adequately cover maturing debt of around NGN102.2 billion, estimated capital expenditures of NGN436.2 billion, and contractual non-debt obligations of about NGN46.1 billion over the next 18-month period.
Overall, liquidity coverage is estimated at above 1.5x for the six months ending 31 December 2026, and 1.2x over the 18 months ending 31 December 2027.
Furthermore, days cash on hand improved to 74 days as of June 30, 2026, indicating sufficient coverage for recurring spending requirements.
The stable outlook underscores the view that Ogun State will continue to generate robust income, which will improve capital projects implementation, enhance liquidity, and support further improvements in leverage metrics.
However, possible revenue collection inefficiencies and strategy execution risks from approaching elections could moderate these strengths over the outlook horizon, GCR said.
