1 JULY 2016-International credit rating agency, Fitch, downgraded Lagos State’s long-term foreign currency issuer default rating (IDR) to B+ from BB- with a stable outlook on Thursday, in what analysts say would trigger a surge in the state’s bond yields.
“Following the downgrade of Nigeria’s Long-Term foreign currency IDR on 23 June 2016, we have taken a similar rating action on the state as it is rated at the same level as the sovereign,” Fitch said in its report.
Fitch noted that “there was a material change in the creditworthiness of the issuer that makes it inappropriate to wait until the next scheduled review date to update the rating or Outlook/Watch status. In this case the deviation was caused by the sovereign downgrade.”
According to the published Sovereign and Local and Regional Governments Rating Review Calendar, the next review date for Lagos State is scheduled on 2 September 2016.
The downgrade comes despite the state government’s effort to restructure its loans to manoeuvre debts. Analysts say Lagos just got riskier as the downgrade suggests. Recall that the State Government, in April, said it had successfully completed the restructuring of its N167.5 billion Programme II, Series 1 and 2 Bonds.
The restructuring was approved by the Securities and Exchange Commission (SEC) according to the state commissioner for finance, Akinkunmi Mustapha, and was achieved through the finalization of a process through which the State worked to reach an agreement with its bond creditors, on accelerating repayment terms. The restructuring transaction is expected to generate savings in excess of N40 billion for the state over the next five years. 99.6 percent of the state’s bondholders at an extraordinary general meeting recently approved the restructuring which apparently was ignored by Fitch while delivering its verdict on Lagos State.
