Nigeria deeper in junk territory
S&P GLOBAL Ratings downgraded Nigeria further into junk territory just as the country prepared to issue its first eurobond since 2013, amid low oil prices and a severe shortage of foreign exchange.
S&P lowered Nigeria’s rating one level to B, five levels below investment grade and in line with Kyrgyzstan and Angola. The outlook was changed from negative to stable.
“Nigeria’s economy has weakened more than we expected owing to a marked contraction in oil production, a restrictive foreign exchange policy and delayed fiscal stimulus,” S&P said on Friday.
While government debt remained low, “servicing costs as a percentage of general government revenues are high and rising”, the company said.
The rating cut comes as Nigeria prepares to issue a dollar bond before the end of the year. The Debt Management Office asked banks wanting to manage a $1 billion (R14bn) deal to place bids by today.
Credit deterioration
Yields on the nation’s $500 million of securities due in July 2023 fell almost 280 basis points to 6.63 percent since peaking at 9.4 percent on January 18. The bonds returned 14 percent this year, compared with the average of 16 percent for sub-Saharan African sovereign dollar debt, according to Bloomberg.
“The deterioration of the Nigerian credit has been going on for years,” said Jan Dehn, the head of research at Ashmore Group. The country needed to show progress opening its markets and letting the naira trade freely.
The downgrade is the latest blow to the economy, which shrank in the last two quarters