Nigeria faces risk of further rating cut
Cabinet delay adds to loss of investor appeal
AS IF being kicked out of one of the biggest emerging-market bond indices is not enough, Nigeria now faces the risk of its credit rating falling further.
Standard & Poor’s (S&P), which rates Africa’s largest oil producer four levels below investment grade at B+ with a stable outlook, releases a review of its assessment on Friday. A week later, it’s the turn of Fitch Ratings, which has Nigeria at BB-, one level above S&P, with a negative outlook.
Those decisions come on the heels of JPMorgan Chase’s announcement last week that Nigerian debt would be removed from its local-currency emerging-market indices, tracked by more than $200 billion (R2.7 trillion) of funds.
Adding to a loss of favour among investors is a delay by President Muhammadu Buhari in naming his cabinet since taking power in May as the country grapples with oil prices below $50 a barrel and speculation that the currency will be devalued.
“There’s a very high risk of a downgrade,” said Jan Dehn, the head of research at Ashmore Group, which sold all of its Nigerian eurobonds and naira debt over the past year. “At the moment, I’m pretty far away from even considering buying anything Nigerian. It’s a deteriorating credit.”
The bond market is siding with Ashmore and Aberdeen Asset Management, which also predicts a ratings cut. Yields on Nigerian dollar bonds have been trading higher than those of Kenya since mid-August. When that happened in March, S&P downgraded Nigeria and Fitch followed days later.
Exotix Partners economist Alan Cameron said: “The oil price has been low for a long time and people assume that’s at least a semi-permanent state of affairs, which will have a very significant impact on fiscal and external projections. It is difficult to argue that Nigeria should not be downgraded.”
Restrictions
Central Bank of Nigeria governor Godwin Emefiele has introduced several foreign-exchange limits since December to stop dollars fleeing the economy amid an almost 60 percent drop in the oil price in the past year.
Emefiele resorted to the measures as the naira fell 20 percent to a record low in the year through February 12. While the limits helped stabilise the naira, foreign-exchange trading has dried up, contributing to JPMorgan’s decision to remove Nigeria’s bonds from its benchmark indices.
“To lose the index status is a classic own goal,” Aberdeen money manager Kevin Daly said. “They were trying to convince investors that they should remain in.”– Bloomberg