S&P Downgrades Nigeria Further Into Junk as Oil Crisis Worsens

LAGOS, Capital Markets in Africa: S&P Global Ratings downgraded Nigeria further into junk territory as Africa’s most populous nation struggles amid low oil prices and severe shortages of foreign-exchange.

S&P lowered Nigeria’s rating one level to B, five levels below investment grade and in line with Kyrgyzstan and Angola. The outlook was changed from negative to stable.

“Nigeria’s economy has weakened more than we expected owing to a marked contraction in oil production, a restrictive foreign exchange policy and delayed fiscal stimulus,” S&P said in an e-mailed statement after markets closed.

While government debt remains low, “servicing costs as a percentage of government revenues are high and rising”, the agency said.

The downgrade is the latest blow to the economy, which shrank in the last two quarters and is headed for its first full-year recession since 1991, according to the International Monetary Fund. While President Muhammadu Buhari’s government announced a record budget for 2016 to stimulate the economy, it is struggling to finance infrastructure projects, as well as pay civil servants’salaries.

The rating cut comes as Nigeria prepares to issue its first Eurobond since 2013. The Debt Management Office asked banks who want to manage a $1 billion deal to place bids by Sept. 19. Nigeria Seeks Managers, Adviser for $1 Billion of Eurobonds Yields on the nation’s $500 million of securities due in July 2023 have falled almost 280 basis points to 6.63 percent since peaking at 9.4 percent on Jan. 18. The bonds have returned 14 percent this year, compared with the average of 16 percent for sub-Saharan African sovereign dollar debt, according to Bloomberg indexes.

Moody’s Investors Service and Fitch Ratings Ltd. each downgraded Nigeria to four levels below investment grade in the first half of the year