Breakfast Report - 19th September 2016
S&P Global Ratings lowered Nigeria’s ratings one level to B whilst also changing its outlook from negative to stable. This rating which pushes Nigeria further into Junk territory was driven by worse than expected weakening in the economy owing to marked contraction in oil production, a restrictive foreign exchange policy and delayed fiscal stimulus. S&P also highlighted that whilst government debt remained low, servicing costs as a percentage of general government revenues are high and rising. As this downgrade comes amidst Federal Government plans to raise its first Eurobond in almost three years, we highlight that the downgrade could raise borrowing cost.
In line with the resolve to adjust domestic/foreign borrowing mix to 60:40 (Current 84:16), the Federal Government is set to raise $1 billion through the issuance of Eurobond before the year runs out in order to fund the nation’s budget deficit. The loan which is a part of the proposed three-year $4.5 billion Medium Term Note Programme can help accelerate delayed capital expenditure in key infrastructure. Meanwhile, the Minister of Finance, Kemi Adeosun, stated that the Federal Government is set to disburse ₦350 billion next week for capital expenditure, bringing the total amount released this year for capital expenditure to c.₦750 billion. Though we note the delayed implementation of the budget, this release comes at a critical time as the country is in dire need of fiscal spending.
After the two-day holiday, the Nigerian equity market traded firmly in the positive territory, recording three green closes in as many sessions. Notably, the rally in CONOIL was further supported by the announcement of a N3.00/share dividend and its impressive H1’16 earnings release on Friday whilst most banking stocks tarried in the red. Overall the ASI posted w/w gains of 1.02% with ytd loss pared to 2.74%.
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