Analysts Bullish on Nigerian Securities despite Moody’s Downgrade

Analysts at Afrinvest (W.A), an investment banking firm, have said Moody’s Investor Services’ downgrade of Nigerian Government long-term issuer and senior unsecured debt rating to B2 from B1, will not lead to a major negative reaction from investors with regards to interest in Nigerian debt securities, especially the Sovereign Eurobonds.

Last week, Moody’s Investor Service downgraded the Nigerian Government’s long- term issuer and senior unsecured debt rating to B2 from B1 while keeping rating outlook stable. The agency cited reasons ranging from unsuccessful efforts toward having a robust non-oil revenue base, which leaves the economy exposed to further economic or financial shocks and high debt servicing cost, which is projected to remain high.

However, the analysts said: “Despite Moody’s downgrade, we do not expect to see any negative kneejerk reaction from investors with regards to interest in Nigerian debt securities especially the Sovereign Eurobonds. Our views are further supported by the fact that Moody’s latest downgrade only puts Nigeria’s rating at par with S&P “B” rating while Fitch’s rating is still higher at “B+”. Hence, we opine that successive issuances of foreign debt instruments will remain largely successful as investors’ preference for high-yielding emerging and frontier market debt instruments linger.”

The federal government had kicked the rating, saying, “we strongly disagree with the premise and must address some of the conclusions upon which the decision rests.”

According to the government, since Nigeria was last rated by Moody’s (as B1 stable) in December 2016, the country has successfully emerged from a protracted recession and recorded important improvements across a broad range of indices.

It listed these indices to include a return to economic growth of 0.55 per cent in the second quarter of 2017, and returning business confidence, as evidenced by a PMI index of 55.0.

Furthermore, the Nigerian government pointed out that the country has continued to witness a stable foreign exchange window for importers and exporters, with improving liquidity and convergence of the parallel and official rates.

This, it stated, has led to significant improvement in the country’s foreign exchange reserves, now totalling $34 billion. Other positive indices which the government listed included: “Increased oil production, combined with stable and now improving oil prices. A slowly improving revenue profile, with non-oil revenue (principally taxes) up 10 per cent. Month on month improvements in inflation levels since January 2017, with inflation continuing to trend downwards. Strong year on year improvement on the World Bank Ease of Doing Business Rankings from 169th to 145th place, a 24 place move in one year.”