Nigeria’s Credit Ratings Losing Touch with Market Reality

Published

9 years ago

February 11, 2015

There’s a growing disconnect between Nigeria’s credit ratings and its bond yields.

Interest rates on naira-denominated notes, classified as junk by the three main ratings companies, reached the highest since 2012 this month, more than lower-ranked Kenya and Egypt, according to data compiled by Bloomberg.

The naira weakened to a record low of N200.2 to a dollar yesterday as escalating violence by the Islamist group Boko Haram in north-eastern Nigeria prompted the electoral commission to push back the vote scheduled for February 14 by six weeks.

Investors are also selling the nation’s dollar bonds as the economy, Africa’s largest, reels from oil prices that have slid by 50 per cent since June, squeezing exports and government revenue.

“The economy is heading for a brick wall,” with export earnings falling and investors waiting for the election results before committing cash,” the lead macro-economic and equity strategist at African Alliance Securities Limited in Johannesburg, Chris Becker.

“The likelihood of a credit-rating downgrade is rising. The risk that the elections won’t be free and fair is rising too.”

The increase in local-currency yields was the steepest after Russian ruble debt over the past three months among 31 emerging markets tracked by Bloomberg.
Standard & Poor’s rates Nigeria three steps below investment grade at BB-, with a negative outlook, while Moody’s Investors Service and Fitch Ratings have stable outlooks.

The postponement is adding to concern among foreign investors who have already reduced Nigerian holdings, Sovereign Group Director at Fitch, Paul Gamble told Bloomberg.

“A return of foreign investors is unlikely until the polls are out of the way and there is more certainty about the exchange rate,” he said.

The “level of political noise” around the elections is already reflected in the Ba3 rating assigned by Moody’s, a Senior Analyst at the company, Aurelien Mali said.

Political risks are moderate and the assessment is also supported by a resilient economy and robust fiscal position, he said.

Almost half the time, government bond yields fall when a rating action suggests they should climb, or they increase even as a change signals a decline, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as 38 years.

The Central Bank of Nigeria (CBN) spent $5 billion in the last three months of 2014 to defend the naira, reducing foreign-exchange reserves to a three-year low.

In November, policy makers weakened the mid-point of the official exchange rate to N168 per dollar from N155 and raised the benchmark borrowing cost to a record 13 percent.

A six-week delay in the elections may not be enough to justify a credit downgrade, Head of Financials Credit at Exotix Partners LLP in London, Nashwa Saleh argued.

Nigeria escaped the latest round of credit downgrades of oil-producing nations on Monday, when S&P cut the debt ratings of Oman, Venezuela, Bahrain and Kazakhstan, while changing the outlook on Saudi Arabia’s credit grade to negative, from stable.

The rating company didn’t immediately respond to Bloomberg’s e-mailed request for comment on Nigeria.

“We’ve basically ticked all those boxes” to trigger a change to the ratings outlook or a downgrade, Africa analyst at FirstRand Limited’s Rand Merchant Bank, Nema Ramkhelawan-Bhana said.

“There is strain on the sovereign” and the currency also “implies increased pressure on the central bank and we might well see action before the election,” she said.–This Day

Related Topics:business MSMEs Naira Nigeria

Up Next

JTF frees kidnap victim, arrests two suspected oil thieves

Don't Miss

In the lighter mood: The Engineers

Click to comment

WAIVER CESSATION: Igbokwe urges NIMASA to evolve stronger collaboration with Ships owners

Published

4 years ago

April 13, 2019

Maritime First

…Stresses the need for timely disbursement of N44.6billion CVFF***

Highly revered Nigerian Maritime Lawyer, and Senior Advocate of Nigeria (SAN), Mike Igbokwe has urged the Nigeria Maritime Administration and safety Agency (NIMASA) to partner with ship owners and relevant association in the industry to evolving a more vibrant merchant shipping and cabotage trade regime.

Igbokwe gave the counsel during his paper presentation at the just concluded two-day stakeholders’ meeting on Cabotage waiver restrictions, organized by NIMASA.

“NIMASA and shipowners should develop merchant shipping including cabotage trade. A good start is to partner with the relevant associations in this field, such as the Nigeria Indigenous Shipowners Association (NISA), Shipowners Association of Nigeria (SOAN), Oil Trade Group & Maritime Trade Group of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA).

“A cursory look at their vision, mission and objectives, show that they are willing to improve the maritime sector, not just for their members but for stakeholders in the maritime economy and the country”.

Adding that it is of utmost importance for NIMASA to have a through briefing and regular consultation with ships owners, in other to have insight on the challenges facing the ship owners.

“It is of utmost importance for NIMASA to have a thorough briefing and regular consultations with shipowners, to receive insight on the challenges they face, and how the Agency can assist in solving them and encouraging them to invest and participate in the maritime sector, for its development.

“NIMASA should see them as partners in progress because, if they do not invest in buying ships and registering them in Nigeria, there would be no Nigerian-owned ships in its Register and NIMASA would be unable to discharge its main objective.

The Maritime lawyer also urged NIMASA to disburse the Cabotage Vessel Financing Fund (CVFF)that currently stands at about N44.6 billion.

“Lest it be forgotten, what is on the lips of almost every shipowner, is the need to disburse the Cabotage Vessel Financing Fund (the CVFF’), which was established by the Coastal and Inland Shipping Act, 2003. It was established to promote the development of indigenous ship acquisition capacity, by providing financial assistance to Nigerian citizens and shipping companies wholly owned by Nigerian operating in the domestic coastal shipping, to purchase and maintain vessels and build shipping capacity.

“Research shows that this fund has grown to about N44.6billion; and that due to its non-disbursement, financial institutions have repossessed some vessels, resulting in a 43% reduction of the number of operational indigenous shipping companies in Nigeria, in the past few years.

“Without beating around the bush, to promote indigenous maritime development, prompt action must be taken by NIMASA to commence the disbursement of this Fund to qualified shipowners pursuant to the extant Cabotage Vessel Financing Fund (“CVFF”) Regulations.

“Indeed, as part of its statutory functions, NIMASA is to enforce and administer the provisions of the Cabotage Act 2003 and develop and implement policies and programmes which will facilitate the growth of local capacity in ownership, manning and construction of ships and other maritime infrastructure. Disbursing the CVFF is one of the ways NIMASA can fulfill this mandate.

“To assist in this task, there must be collaboration between NIMASA, financial institutions, the Minister of Transportation, as contained in the CVFF Regulations that are yet to be implemented”, the legal guru highlighted further.

He urged the agency to create the right environment for its stakeholders to build on and engender the needed capacities to fill the gaps; and ensure that steps are being taken to solve the challenges being faced by stakeholders.

“Lastly, which is the main reason why we are all here, cessation of ministerial waivers on some cabotage requirements, which I believe is worth applause in favour of NIMASA.

“This is because it appears that the readiness to obtain/grant waivers had made some of the vessels and their owners engaged in cabotage trade, to become complacent and indifferent in quickly ensuring that they updated their capacities, so as not to require the waivers.

“The cessation of waivers is a way of forcing the relevant stakeholders of the maritime sector, to find workable solutions within, for maritime development and fill the gaps in the local capacities in 100% Nigerian crewing, ship ownership, and ship building, that had necessitated the existence of the waivers since about 15 years ago, when the Cabotage Act came into being.

“However, NIMASA must ensure that the right environment is provided for its stakeholders to build and possess the needed capacities to fill the gaps; and ensure that steps are being taken to solve the challenges being faced by stakeholders. Or better still, that they are solved within the next 5 years of its intention to stop granting waivers”, he further explained.

Breaking News: The Funeral Rites of Matriarch C. Ogbeifun is Live

Published

5 years ago

March 7, 2019

Maritime First

The Burial Ceremony of Engr. Greg Ogbeifun’s mother is live. Watch on the website: www.maritimefirstnewspaper.com and on Youtube: Maritimefirst Newspaper.

Wind Farm Vessel Collision Leaves 15 Injured

Published

5 years ago

February 20, 2019

Maritime First

…As Valles Steamship Orders 112,000 dwt Tanker from South Korea***

A wind farm supply vessel and a cargo ship collided in the Baltic Sea on Tuesday leaving 15 injured.

The Cyprus-flagged 80-meter general cargo ship Raba collided with Denmark-flagged 31-meter wind farm supply vessel World Bora near Rügen Island, about three nautical miles off the coast of Hamburg.

Many of those injured were service engineers on the wind farm vessel, and 10 were seriously hurt.

They were headed to Iberdrola’s 350MW Wikinger wind farm. Nine of the people on board the World Bora were employees of Siemens Gamesa, two were employees of Iberdrola and four were crew.

The cause of the incident is not yet known, and no pollution has been reported.

After the collision, the two ships were able to proceed to Rügen under their own power, and the injured were then taken to hospital.

Lifeboat crews from the German Maritime Search and Rescue Service tended to them prior to their transport to hospital via ambulance and helicopter.

“Iberdrola wishes to thank the rescue services for their diligence and professionalism,” the company said in a statement.

In the meantime, the Hong Kong-based shipowner Valles Steamship has ordered a new 112,000 dwt crude oil tanker from South Korea’s Sumitomo Heavy Industries Marine & Engineering.

Sumitomo is to deliver the Aframax to Valles Steamship by the end of 2020, according to data provided by Asiasis.

The newbuild Aframax will join seven other Aframaxes in Valles Steamship’s fleet. Other ships operated by the company include Panamax bulkers and medium and long range product tankers.

The company’s most-recently delivered unit is the 114,426 dwt Aframax tanker Seagalaxy. The naming and delivery of the tanker took place in February 2019, at Namura Shipbuilding’s yard in Japan.

Maritime Executive with additional report from World Maritime News