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Standard &
Poor’s Ratings Services has assigned its ‘B+’ long-term senior
unsecured debt rating to the proposed $500 million 10-year bond to be
issued by Nigeria in the next few weeks.

At the same time,
S&P assigned a recovery rating of ‘4’ to the proposed bond,
indicating its expectation of average (30 per cent to 50 per cent)
recovery in the event of a payment default.

In an issued
statement yesterday, the global ratings agency said: “We rate bonds
with a ‘4’ recovery rating at the same level as the issuer credit
rating. The rating on Nigeria’s upcoming bond is, therefore, equalised
with the ‘B+’ long-term foreign currency sovereign credit rating.”

The agency stated that it applied a hypothetical event of default as a starting point.

“If the government
were to default, we believe it would likely follow a prolonged period
of adverse terms of trade that deepened the country’s regional
tensions.”

The agency noted
that Nigeria’s debt profile would look very different under such a
scenario, and a period of uncertain governability could ensue.

“In this scenario,
we assume that Nigeria’s multilateral creditors would maintain their
preferred creditor status and bilateral creditors would resist a debt
reduction,” since, according to the agency, Nigeria has already
benefited from a 60 per cent reduction of $30 billion of Paris Club
debt in 2000 and 2005.

While downplaying
the possibility of such a scenario, as indicated by the ‘B+’ rating,
S&P noted that its sovereign credit ratings on Nigeria are
constrained by its view of the country’s political risk, as manifested
in its underdeveloped political institutions and apparently weak
governance.

“The ratings are
also constrained by a low level of development and high dependence on
the oil sector. Furthermore, we see residual risks in Nigeria’s
financial sector, although the Central Bank has addressed solvency and
liquidity problems in the banking sector,” it said.

The ratings on Nigeria are supported by the sovereign’s strong
external and fiscal balance sheet, owing to debt write-offs in 2005 and
2006 and fiscal reserves built up during years of high oil prices.