A Review of the Nigerian Energy Industry

JP Morgan: Nigerian bonds face downgrade risk

15 September 2015, Lagos – Federal Government bonds are facing the risk of credit rating downgrade following the expulsion of Nigeria from the JP Morgan Government Bond Index-Emerging Markets, Reuters has reported.

JP Morgan Chase.

Standard & Poor’s, which rates Nigeria four levels below investment grade at B+ with a stable outlook, will release a review of its assessment on September 18.

A week later, it’s the turn of Fitch Ratings, which has Nigeria at BB-, one level above S&P, with a negative outlook.

The rating agencies decision to review Nigerian bonds’ ratings came on the heels of JP Morgan’s announcement last week that Nigerian debts would be removed from its local-currency emerging-market indexes, tracked by more than $200bn of funds.

Adding to a loss of favour among foreign investors is a delay by President Muhammadu Buhari in naming his cabinet since taking power in May as the economy grapples to cope with oil prices below $50 a barrel and speculation that the currency will be devalued.

“There’s a very high risk of a downgrade,” the Head of Research at Ashmore Group Plc, which sold all of its Nigerian Eurobonds and naira debt over the past year, Jan Dehn, said.

“At the moment, I’m pretty far away from even considering buying anything Nigeria. It’s a deteriorating credit,” he added.

The bond market is sliding with Ashmore and Aberdeen Asset Management Plc, which also predicts a ratings cut.

Yields on Nigerian dollar bonds have been trading higher than those of Kenya — which has an economy almost a tenth of Nigeria’s size and is rated lower by Fitch — since mid-August.

When that last happened in March, S&P downgraded Nigeria and Fitch followed days later by lowering its outlook from stable.

“Fitch is the one people will be watching most closely,” an economist at Exotix Partners LLP in London, Mr. Alan Cameron, said by telephone on September 10.

He 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 at this point.”

Central Bank of Nigeria Governor Godwin Emefiele has introduced several foreign-exchange restrictions since December to prevent dollars fleeing the economy amid an almost 60 per cent drop over the past year in the price of oil, which accounts for 90 percent of exports and two-thirds of government revenue.

Emefiele resorted to the measures as the naira weakened 20 per cent to a record of 206.32 per dollar in the year through February 12.



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