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Foreign investors fault low credit rating for Nigeria

By Babajide Komolafe
LAGOS—Foreign investors have faulted the downgrading of Nigeria’s credit rating by Standard and Poor’s, saying that on-going banking reforms are  a positive one for the nation’s economy.

Last Week, Standard and Poor’s, the leading global rating agency, downgraded Nigeria’s foreign currency credit rating to B-plus from BB-minus, saying “the lowering of the sovereign rating on Nigeria reflects our view of the government’s reduced fiscal flexibility due to costs associated with its recent bailout of five large domestic banks, and also the fall-off in government oil revenue.”

Speaking yesterday in Lagos, Razia Khan, Regional Head of Economic Research, Standard Chartered Bank said that reactions  from foreign investors,  mostly portfolio investors, was that the decision was basically flawed. “At Standard Chartered, we also believed that the downgrading is difficult to justify and disagree with the rationale for the decision.”

“For example, I received an e-mail from an Hedge Fund in California.  The mail  basically said the Standard and Poor’s decision is basically flawed. This particular investor was saying if Nigeria was to issue a Euro-Bond, the pricing would be tighter than for a similar B rated credit.

And that is what it shows that the market would be of the opinion that the downgrade was not necessarily justified.

Though Nigeria doesn’t have any plans for any imminent Euro-Bond issuing but that is the view of the majority of the investors we speak to, that generally the reception to the banking sector reforms have been overwhelmingly positive.

They don’t see it as a time of greater uncertainty for the Nigerian economy because there is no questioning in anybody’s mind that this is something that is needed to be put in place, that would ultimately bring about the sort of transparency and improved disclosure that investors are looking for.

So on the whole from the investors that Standard Chartered has been speaking to, portfolio investors largely, the reaction has been overwhelmingly positive.”

Speaking further, Khan said that  Standard and Poor’s rating of B+ put Nigeria at par with countries like Ghana and Kenya and this was unjustified by the various economic parameters like the external balance sheet, size of the external reserve and the government debt to GDP ratio.

She said the bank also disagreed with the basis for the lower rating. “We do not agree with S&P that the banking reforms and especially the bailout of the five banks would constrain fiscal flexibility or lead to inflation.

We see the banking reforms as needed, timely, and beneficial and would lead to better capitalisation of the banking sector and enhance its status as the engine growth of the economy.

We don’t see any fiscal impact  of the reforms for now and we believe that Nigeria is not doing badly on the fiscal side now. So over all, we see it as a positive one for the economy.”


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