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Business Fitch Upgrades Lagos to AA+; Outlook Stable


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Fitch Ratings has reportedly upgraded Nigerian Lagos State's National Long-term rating to 'AA+(nga)' from 'AA(nga)'. The Outlook is Stable.

The agency also simultaneously affirmed Lagos State's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB-' with Stable Outlooks and its Short-term foreign currency IDR at 'B'.

Its NGN275bn MTN programme, together with its NGN57.5bn and NGN80bn bonds, which mature in 2017 and 2019, respectively, have been affirmed at 'BB-' and upgraded to 'AA+(nga)' from 'AA(nga)'.

The upgrade reflects Fitch's expectations of the Lagos' continued solid operating performance, improved transparency and efforts towards an increasingly sophisticated and transparent administration, which is conducive to growing private sector investments.

Lagos was rated 'High" in Management &Administration and Economy and a 'Medium' rating in Finance and Debt &Liquidity

Fitch believes that Lagos management is becoming increasingly more sophisticated with the aim to progressively improve transparency and accountability to international standards. Fitch says the state is improving its governance and disclosure, with budgets and quarterly performance being published on the official website.

Fitch also believes that Lagos' socio-economic indicators will further improve as local GDP growth is expected to outperform the estimated national GDP growth of 7%-8% in 2014.

After recording a strong 57% in 2013, Fitch expects Lagos to see its operating margin stabilise at around 50% in the medium term, supported by growing local taxes, and by the administration's commitment to keep cost growth in line with inflation (expected at 8%-10% over the medium term), Reuters say.

The ratings could be further upgraded if improvements in the budgetary performance result in debt levels at 1x the budget size, while maintaining a high component of subsidised foreign loans (about 30% at end-2013), in turn lowering the debt servicing burden.

Conversely, an operating margin declining towards 30%, unfavourable changes in the national tax policy, debt rising beyond Fitch's expectations and economic instability, even at the local level, could lead to a downgrade.

#Lagos #Nigeria #Fitch #London #Reuters

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