- Advertisement -spot_img
28.2 C
Lagos
HomeTop NewsAftermath of Moody's downgrade, Nigeria's bonds tumble

Aftermath of Moody’s downgrade, Nigeria’s bonds tumble

- Advertisement -spot_img

Nigeria’s government bonds fell heavily on Monday after ratings agency Moody’s downgraded the West African oil producer late on Friday to Caa1 from B3, saying the government’s fiscal and debt position was expected to keep deteriorating.

Longer-dated bonds were down the most, with the dollar-denominated 2051 Eurobond falling more than 2.8 cents in the dollar to 68.758 cents according to Tradeweb data . Only the Eurobond maturing this year fell less than 1 cent.

“That is a significant move because there will be a lot of forced selling,” Viktor Szabo, emerging market portfolio manager at Abrdn, told Reuters. “Pension funds don’t like have names that are defaulting or even close to defaulting”

As the bond prices tumbled, the premium or ‘spread’ investors demanded to hold Nigerian debt rather than ultra-safe U.S. Treasuries jumped 46 basis points to 777 basis points. Nigeria’s bonds had outperformed other African and emerging market issuers over the last six months, according to JPMorgan.

“The review for downgrade focused on Nigeria’s fiscal and external position and the capacity of the government to address the ongoing deterioration – other than by alleviating the burden of its debt through any form of default, including debt exchanges or buy-backs,” Moody’s said.

READ ALSO: Robust corporate earnings drive Nigeria’s equity market gain by N273 bln

“Immediate default risk is low, assuming no sudden, unexpected events such as another shock or shift in policy direction,” Moody’s added.

Nigeria’s state oil firm spent N4.39 trillion on a petrol subsidy last year, which the government has blamed for the declining state of its public finances at the same time as oil production has been throttled by theft and pipeline vandalism.

Moody’s said it expects just the interest payments on Nigeria’s debt to take up about half of the government’s revenue in the medium term, up from 35 percent in 2022. It also sees the debt-to-GDP ratio rising to 45 percent, up from 34 percent last year and 19 percent in 2019.

The International Monetary Fund estimates the country spent 80% of revenues on servicing debt last year, a ratio that it reckons could rise to 100 percent.

Nigeria’s finance minister Zainab Ahmed said the country’s debt trajectory was sustainable in an interview with Bloomberg TV earlier in January and that the plan was to bring the debt service-to-revenue ratio down to 60 percent in 2023.

Join Our Mailing List!

* indicates required
- Advertisement -spot_img
- Advertisement -spot_img
Must Read
Related News
- Advertisement -spot_img