This Day (Lagos)

25 March 2014

Nigeria: Standard and Poor's Put Nigeria On Credit Watch, Govt Appeals

Photo: Jide Odukoya /Flickr
Lagos, Nigeria

Standard and Poor's (S&P), one of the world's leading financial and analytical credit rating agencies, has put Nigeria on a credit watch following its decision to review the country's rating from "stable outlook", an action which the federal government has since appealed. S&P made its intention known last Friday, citing dearth of new information on the country, and the uncertainty surrounding monetary policies after the suspension of the Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido, in February 2014.

Though the impending report does not translate to a downgrade of the BB- long term rating it gave the country last October, the federal government had to question the reasoning behind the review on the country's stable outlook, stating that there had been positive macroeconomic developments since the release of the agency's last rating on Nigeria. Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, said the move by the agency was unacceptable, especially on the issue of lack of information.

Speaking to THISDAY, she said the agency should have upgraded their information on the country by reaching out to the relevant contacts and agencies it deals with during the rating exercise. She explained that S&P was under pressure last week to file its ratings on sovereign countries and other obligors owing to the change of regime imposed on rating agencies by the US government, which requires them to submit reports twice a year. "So when they called last week saying they were changing their outlook for Nigeria from stable due to the unavailability of information and had a deadline to meet, we asked why. "If they cannot send someone to come to the country for information, they should have at least called or reached the relevant contacts through their agents to get the relevant information needed for their assessment," she said, adding that the appeal was to give them room to upgrade their information before making public their rating report on Nigeria.

Another market analyst had also explained that S&P had no business altering its outlook on a sovereign country without updating its data, as the legislation giving rating agencies legal backing requires them to ensure that their information on any entity is up to date. S&P had specifically given the suspension of Sanusi as reason for the impending change in the country's outlook, stating that the suspension amounted to government interference with monetary policies. It therefore placed the country on a credit watch for a period of one week as a result of the appeal by the federal government.

"As a result, we are placing our long-term sovereign credit ratings on Nigeria on CreditWatch with negative implications," S&P stated. However, Okonjo-Iweala specifically said the monetary policy regime was not a decision made by one man, noting that the decision on monetary policies are made by a 12-man committee, which was recently appointed for another four-year term. "So I informed them about the newly appointed committee, which S&P claimed they were unaware of," she said. She also apprised them of other macroeconomic developments in the country, which included: a rise in the Excess Crude Account (ECA), growing from $2.11 billion to $3.45 billion in March and the deceleration in the rate of inflation to 7.7 per cent. S&P rates borrowers on a scale from AAA to D. Intermediate ratings are offered at each level between AA and CCC (e.g., BBB+, BBB and BBB).

For some borrowers, the company may also offer guidance (termed a "credit watch") as to whether it is likely to be upgraded (positive), downgraded (negative) or uncertain. An obligor rated "BB", the rating rung which Nigeria currently occupies, is less vulnerable in the near-term than other lower-rated obligors. However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitments.

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