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Nigeria’s Eurobonds fall after Moody’s Downgrade

Nigeria’s Eurobonds fell on Monday after Moody’s, the international rating agency, downgraded the country’s long-term foreign currency and local-currency issuer ratings on low revenue and high debt profiles.

The fall in the price of the bonds has raised their yields, signaling investors’ demand for higher yields on the bonds, given the country’s perceived higher riskiness after the downgrade.

Moody’s on Friday announced a downgrade of Nigeria’s long-term foreign-currency and local-currency issuer ratings as well as its foreign currency senior unsecured debt ratings, as well as its foreign currency senior unsecured debt ratings to Caa1 from B3, blaming it on the country’s low revenue and high debt profiles.

Moody’s also lowered Nigeria’s local currency (LC) and foreign currency (FC) country ceilings to B2 and Caa1 respectively, from B1 and B3 respectively. It noted that the LC country ceiling at B2 remains two notches above the sovereign issuer rating, incorporating some degree of unpredictability of government actions, political risk, and reliance on a single revenue source.

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All the country’s 13 Eurobonds fell on the first trading day after the downgrade, with the bond due in 2032 falling the highest with a $3.625 fall to a yield (bid) of 12.08 percent, according to trading results seen by Daily Trust.

Three bonds maturing in 2029, 2033, and 2047 all lost by the same amount of $3.5, to yields (bid) of 12.01%, 11.91%, and 11.92%, respectively.

Even the $500m bond that matures in July this year fell by $0.375 to a yield of 8.67%.

Moody’s said the Nigerian government faces wide-ranging fiscal pressure while the capacity to respond remains constrained by Nigeria’s long-standing institutional weaknesses and social challenges. Ultimately, the risk that a negative feedback loop sets in over the next couple of years between higher government borrowing needs and rising interest rates have intensified, exacerbating the policy trade-off between servicing debt and financing other key spending items.

“What the downgrade means is that the health of the economy is not getting better. All this rating is about assessing how healthy an economy is. And if you are having a downgrade, it means that the economic conditions are not improving,” Dr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, said in an interview with Daily Trust.

“This means that the risk of dealing with us as an economy is getting higher, especially credit risk. If for instance you want to borrow, or a corporate organization wants to borrow, the cost of credit will be higher because the economy has been downgraded. That means we are not a bigger credit risk. So, the cost of credit to either the sovereign or the corporates will be higher,” said Yusuf.

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