GCR Places Four Nigerian State Governments’ Ratings on ‘Negative Watch’
Lagos Nigeria, 4 April 2020 – Global Credit Rating Company Limited (“GCR”) has today placed on ‘Negative Watch’ the national scale Issuer credit ratings currently accorded to four (4) States (Gombe, Nasarawa, Ondo and Plateau) in Nigeria by GCR. This rating action reflects the elevated potential for a significant deterioration in the country’s risk profile, specifically, considering the over dependence of the States on federally allocated revenue.
Recently, Nigeria’s credit risk profile has been exacerbated by the dual challenges of contraction in crude oil sales volume and its falling prices at international market (crashing from USD68.4 as at 31 December 2019 to USD22.8 per barrel as at 30 March 2020), resulting in significant decline in the country’s revenue. Consequently, Nigeria’s foreign exchange reserves has declined from USD38.6bn as at 31 December 2019 to USD35.5bn as at 27 March 2020, while the Naira value has depreciated by around 15% to N415 to a USD at the parallel market during the same period. The decline in dollar inflow into the economy is expected to create foreign currency (“FCY”) scarcity, potential for devaluation of the currency, which would elevate the State governments’ debt profiles and constrain their ability to meet their FCY-denominated obligations, although the severity would depend on the effectiveness of the various measures introduced by Central Bank of Nigeria to manage the concerning situation, particularly through restructuring of banks’ exposures to the States.
The impact of the Coronavirus (“COVID-19”) pandemic on individuals and businesses (particularly, given the restriction of trade flow and the shutdown of businesses) is also expected to further weaken the internal revenue generating capacity of these States in the near term.
This rating action equally affects the senior debt and subordinated debt issued or guaranteed by the above-mentioned States.
GCR will take appropriate further rating actions on a case-by-case basis once the full impact of the aforementioned factors becomes clearer.
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