Moody’s downgrade: No negative reaction from investors says investment banker

Published by

8 years ago

AfrinvestA Lagos-based investment banking and securities firm, Afrinvest (West) Africa Limited has dismissed last week’s downgrade of Nigeria, saying that it will not have any negative reaction from investors.

During the week, Moody’s Investor Service downgraded the Nigerian Government’s long- term issuer and senior unsecured debt rating to B2 from B1.

The agency kept rating outlook stable, citing reasons ranging from unsuccessful efforts toward having a robust non-oil revenue base which leaves the economy exposed to further economic or financial shocks and high debt servicing cost which is projected to remain high.

Despite Moody’s downgrade, analysts from the firm said they do not expect to see any negative reaction from investors with regards to interest in Nigerian debt securities especially the Sovereign Eurobonds.

This is coming after the Federal Government in a statement issued in Abuja by the Debt Management Office on behalf of the Ministry of Finance and the Central Bank of Nigeria, said the premise for the rating was faulty, adding that since Nigeria’s last rating in 2016, the nation had made quantum leaps in several economic frontiers.

In a note to investors, Afrinvest said, “Our views are further supported by the fact that Moody’s latest downgrade only puts Nigeria’s rating at par with S&P “B” rating while Fitch’s rating is still higher at “B+”.

“Hence, we opine that successive issuances of foreign debt instruments will remain largely successful as investors’ preference for high-yielding emerging and frontier market debt instruments linger.”

Meanwhile, Nigeria’s bonds were flat on Wednesday, shrugging off the downgrade, since investors had already factored in issues that triggered the rating change and were buying debt at a discount to book profits, traders said.

Domestic bonds traded unchanged after some foreign investors booked profits before the rating decision. Yield on the benchmark 20-year bond rose 10 basis points to 15.03 per cent, traders said.

On the eurobond market, yields on Nigeria’s $500 million of bonds due 2018 rose to 3.60 per cent on Wednesday from 3.08 percent. Yield on its latest $1.5 billion issue due 2032 climbed to 6.80 per cent from 6.7 per cent.