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S&P affirms Nigeria’s ‘BB-/B’ rating, negative outlook

By on September 23, 2014

Global rating agency, Standard & Poor’s (S&P), has affirmed its ‘BB-/B’ rating on Nigeria.

 

However, S&P in the latest rating on Nigeria stated that the country’s outlook remains negative, pointing out that there was at least a one-in-three chance “that we could lower the ratings on Nigeria if institutional governance effectiveness deteriorates, or if fiscal or external balances weaken beyond our current projections”.
S&P said the rating was constrained by its view of Nigeria’s low Gross Domestic Product (GDP) per capita, significant infrastructure shortfalls, political tensions, and weak institutions.

 

However, it noted that the country benefits from low government and external debt burdens, ample oil reserves, and robust non-oil GDP growth.
Furthermore, S&P anticipates petroleum prices would largely remain high, which would support exports and government revenues.

 

It also acknowledged a series of reforms in agriculture, the privatisation of the power sector, and the rapid growth of sectors such as telecoms and financial services, which have contributed to the country’s growth momentum.
“However, oil production has stagnated, as new investment holds out for the passage by parliament of the long-awaited Petroleum Investment Bill (PIB).

 

“Nigeria’s real GDP continues to grow strongly and we forecast that it will average 6.3 per cent a year in 2014-2017, driven primarily by non-oil growth and strong services growth.
“In addition, external and fiscal debt stock burdens are low. Nevertheless, political jockeying is high in the run-up to the February 2015 elections, which may test Nigeria’s institutions and fiscal resilience; and militancy in the North-east continues to flare.

 

“We are affirming our sovereign credit ratings on Nigeria at ‘BB-/B’. The outlook remains negative, indicating at least a one-in-three chance that we could lower the ratings on Nigeria if institutional governance effectiveness deteriorates, or if fiscal or external balances weaken beyond our current projections,” it added.
Also, another global rating agency, Fitch Ratings, at the weekend upgraded Lagos State’s national long-term rating to ‘AA+(nga)’ from ‘AA(nga)’.

 

Fitch further affirmed Rivers State’s long-term foreign and local currency issuer default ratings (IDRs) at ‘BB-‘ and its national long-term rating at ‘AA-(nga)’, just as it affirmed Kaduna’s long-term foreign and local currency issuer default ratings (IDRs) at ‘B+’ and national long-term rating at ‘A+(nga)’.
On Lagos State, Fitch noted that the state’s outlook remains “stable”.
“The agency has simultaneously affirmed Lagos State’s long-term foreign and local currency Issuer IDRs at ‘BB-‘ with stable outlook and its short-term foreign currency IDR at ‘B’,” it explained.

 

It stated that Lagos’ N275 billion MTN programme, alongside its N57.5 billion and N80 billion bonds, which would mature in 2017 and 2019, respectively, have been affirmed at ‘BB-‘ and upgraded to ‘AA+(nga)’ from ‘AA(nga)’.
“The upgrade reflected Fitch’s expectations of the state’s continued solid operating performance, improved transparency and efforts towards an increasingly sophisticated and transparent administration, which is conducive to growing private sector investment,” it stated.
The rating reflects the following drivers and their relative weights – high management and administration.

 

“Fitch believes that Lagos’ management is becoming increasingly more sophisticated. With the aim to progressively improve transparency and accountability to international standards, the state is improving its governance and disclosure, with budgets and quarterly performance being published on the official website,” it added.
On Rivers State, Fitch stated that the state’s outlook was “stable”, adding that the ratings reflected “Fitch’s expectations that Rivers will continue to report a solid operating margin in the medium term, mainly driven by growing non-oil revenue being partially offset by gradually increasing operating expenditure, as well as by improving management disclosure and transparency.

 

“The rating also took into account Fitch’s expectation of rising financial debt, reflecting the administration’s commitment to maintain a high level of capital expenditure to alleviate its weak socio-economic indicators.”
Also, for Kaduna, Fitch noted that the state’s outlook remains “stable”.
“The affirmation reflects Fitch’s expectations that Kaduna State will continue to achieve healthy financial performance amid mild growth in local taxes and subsidies from the federal government.
“The rating also took into account the likely increase in financial debt due to the high infrastructure investment programme, which could potentially pressurise the budget, and the weak socio-economic environment,” it added.

 

[This Day]