Sunday 18, June 2017 by Matthew Amlôt

Moody's assigns provisional (P)B1 rating to Nigeria's proposed Diaspora Bond

Moody's Investors Service has today assigned a provisional senior unsecured (P)B1 rating to the proposed Government of Nigeria's Diaspora Bond.

According to the transaction documents available to Moody's, the Notes under the proposed Diaspora Bond are direct, general, unconditional, unsecured and unsubordinated obligations of the Federal Government of the Republic of Nigeria (the issuer) and will rank pari passu with all other unsecured external debt obligations of the issuer. The proposed Notes are governed by New York Law and terms of the notes contain a negative pledge provision. The (P)B1 rating on Nigeria's proposed $300 million Diaspora Bond mirrors the Federal Government of Nigeria's B1 (stable outlook) issuer rating, which reflects its current weak economic growth dampened by the low oil price environment.

Nigeria's economic growth and US dollar earnings are likely to gradually improve in 2017, supported by a recovery in oil production and oil prices. The current rebound in oil production trending towards two million barrels per day (mbpd) since the last quarter of 2016, if sustained, is providing relief to both economic growth and support the US dollar supply in the economy. The economy is also likely to see further benefits arising from a more timely implementation of the 2017 budget and in particular a higher realisation of capital spending on infrastructure. Although militant activity in the Niger Delta is set to wane following ongoing negotiation and the resumption of payments from the government, it will remain a latent threat to the expected recovery of the economy. The existing scarcity of dollars -- worsened by the soft capital controls imposed by the Central Bank of Nigeria -- is likely to be persistent and therefore negatively affect important sectors of the economy such as services and manufacturing. We do not expect the current policy mix to significantly change over the short term but a gradual easing of restrictions is possible as foreign currency receipts improve with rising oil production.

Nigeria's issuer rating is constrained by the weakness of Nigeria's institutional framework, especially in terms of the rule of law, government effectiveness and control of corruption, which has had a substantial impact economic growth and government fiscal strength. Additionally, Nigeria is exposed to political risks arising from both the conflict with Boko Haram and recurrent attacks on oil infrastructures in the Niger.

WHAT COULD CHANGE THE RATING UP

Positive pressure on Nigeria's issuer rating will be exerted upon: 1) successful implementation of structural reforms by the Buhari administration, in particular with respect to public resource management and the broadening of the revenue base; 2) strong improvement in institutional strength with respect to corruption, government effectiveness, and the rule of law; 3) the rebuilding of large financial buffers sufficient to shelter the economy against a prolonged period of oil price and production volatility.

WHAT COULD CHANGE THE RATING DOWN

Nigeria's B1 issuer rating could be downgraded in case of failure to implement revenue reform that might lead to a further accumulation of debt; 2) a greater-than-anticipated deterioration in the government's balance sheet; 3) material delay in implementing key structural reforms, especially in the oil sector, to maintain the level of oil production over the medium-term; 4) inability to stabilize oil production due to increased militancy in the Niger Delta.

  • GDP per capita (PPP basis, $): 6,121 (2015 Actual) (also known as Per Capita Income)
  • Real GDP growth ( per cent change): -1.5 per cent (2016 Estimate) (also known as GDP Growth)
  • Inflation Rate (CPI, per cent change Dec/Dec): 19 per cent (2016 Estimate)
  • Gen. Gov. Financial Balance/GDP: -3.8 per cent (2016 Estimate) (also known as Fiscal Balance)
  • Current Account Balance/GDP: 0.7 per cent (2016 Estimate) (also known as External Balance)
  • External debt/GDP: 5.3 per cent (2016 Estimate)
  • Level of economic development: Low level of economic resilience
  • Default history: No default events (on bonds or loans) have been recorded since 1983.

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