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The
downward country rating of Nigeria by Fitch Ratings, the international
rating agency, may not significantly affect Nigeria’s debut at the
international bond market, says a financial analyst.

Nigeria
plans to raise $500 million from the international debt market before
year end. Razia Khan, regional head of research, Africa Global
Research, Standard Chartered Bank, London, said though the downgrade
was not unexpected, there were clear guidance on what the country
needed to do in order to retain the confidence of the international
investing community.

“Ahead of its maiden Eurobond, the market implications of the Fitch outlook revision are probably limited,” Ms. Khan said.

“However,
there is considerable market expectation that any eventual external
debt issuance by Nigeria is likely to trade tighter than
similarly-rated peers,” she said in her quick view of Nigeria’s latest
sovereign rating.

Concerns about spending

She said there have been concerns about the way Nigeria spends her revenue, a fact reflected in the Fitch Ratings report.

“The
drawdown of the excess crude account and fall in international reserves
are factors that have worried investors, but the Fitch move is
altogether more measured, and strikes a good balance between
considering near term cyclical pressures and the potential upside
further out,” she added.

The
excess crude account (ECA), which stood at over $20 billion in 2007, is
now about $500 million. Last Thursday, Nigeria’s foreign reserves
dropped to $33.91 billion, its lowest level in several years.

Ms.
Khan said there was need for the institutionalisation of oil savings,
fiscal improvements, including a removal of fuel subsidies, and greater
transparency overall in order for Nigeria to enjoy the confidence of
the international investing community.

“It
is important to note that the measures which Fitch has identified as
important for Nigeria’s outlook to return to stable are already being
implemented.

“For
instance, we understand that Fitch will view the passing of the Bill to
establish the Nigerian Sovereign Wealth Fund very positively,” said the
minister of finance, Mr Olusegun Aganga.

He
added that the Bill is being drafted, and expressed the hope that it
will receive a positive and speedy reception in the National Assembly.

Effect on sub national ratings

Fitch’s
downgrade also had a spiral effect on other ratings within the country,
as the ratings agency has revised Lagos State’s long-term foreign
currency rating outlook to negative from stable, and affirmed the
actual rating (BB-).

Samir
Gadio, emerging markets strategist at Standard Bank, said such a
development was expected since Lagos State’s rating and outlook were in
line with those of the sovereign. He said this does not necessarily
suggest deterioration in Lagos State’s operating environment.

Lagos
State is currently in the debt market to raise N275 billion in multi
tranches funds for developmental purposes. The latest entrance is the
N50 billion infrastructure renewal bond opened in July.

Last
year, Fitch also assigned Rivers State a long-term foreign and local
currency ratings of ‘B+’ and a national long-term rating of ‘AA-, the
highest subnational rating in the country.