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Moody’s downgrades Nigeria’s sovereign rating to B3

Global Investor Service, Moody’s credit rating agency, has downgraded Nigeria’s local and foreign currency long-term issuer ratings and senior unsecured debt ratings to B3 from B2 and placed them on review for downgrade.

The rating downgrade is a result of the country’s significant and constant deterioration in government finances and higher borrowing in the face of rising international crude oil prices.

Similarly, the rating agency lowered the country’s local currency (LC) and foreign currency (FC) ceilings to B1 and B3, from Ba3 and B2, respectively.

The LC country ceiling at B1 remains two notches above the sovereign issuer rating, incorporating some degree of unpredictability of government actions, political risk, and reliance on a single revenue source.

The FC country ceiling at B3 remains two notches below the LC country ceiling, reflecting significant transfer and convertibility risks, given the track record of imposition of capital controls in times of low oil prices or falling oil production.

Analysts consider the downgrade a higher risk rating for both external and domestic bonds, thus pressuring investors to sell off and bid for a higher interest rate on new bond issuances. The selloff will eventually push yields up and lead to a higher sovereign borrowing cost.