The downgrade of Nigeria’s credit rating by Standard & Poor’s on Friday due to falling oil prices and rising political risks may already have been priced in as investors expect the outcome of presidential elections due in five days to be a bigger driver of sentiment in the coming weeks. “We do not expect the confirmation of the S&P downgrade to have a significant impact on Nigerian assets, as the risk of any ratings action had largely been priced in already.
Elections, expected in a week’s time, are a much bigger driver of investor sentiment,” Razia Khan, Managing Director, Head, Africa Macro Global Research, said in response to questions. “For now, the stable outlook assigned to Nigeria’s rating suggests that there is little risk of further ratings action from S&P in the near-term.”
The foreign and local currency long-term rating BB- was cut one level by S & P to B+, four levels below investment grade. The outlook was changed to stable. Nigeria which is Africa’s largest economy derives 90 percent of export earnings and 70 percent of government revenue from oil and is struggling with Brent crude prices which have halved since June.
The International Monetary Fund (IMF) predicts growth of 4.8 percent this year, down from 6.3 percent in 2014. The naira has weakened 18 percent in the past six months, according to Bloomberg data.
Shell sells OML 18 to Eroton Consortium for $737m Shell Petroleum Development Company of Nigeria Limited (SPDC), a subsidiary of Royal Dutch Shell plc (Shell), has completed the sales of its 30 per cent interest in oil mining lease (OML) 18 and related facilities in the Eastern Niger Delta.
The shares were acquired by Eroton Exploration and Production Company Limited at a total cost of $737 million. This divestment is part of the strategic review of SPDC’s onshore portfolio and it is in line with the Federal Government of Nigeria’s aim of developing Nigerian indigenous companies in the country’s upstream oil and gas business. Shell has been in Nigeria for more than 50 years and remains committed to keeping a long-term presence – both onshore and offshore.
Through SPDC and its other Nigerian companies, Shell responsibly produces the oil and gas needed to help fuel the economic and industrial growth that generates wealth for the nation and jobs for Nigerians. OML18 covers an area of 1,035 square kilometres and includes the Alakiri, Cawthorne Channel, Krakama, and Buguma Creek fields and related facilities.
The divested infrastructure includes flow stations together with associated gas infrastructure plus oil and gas pipelines within the OML. The divested fields produced on average around 14,000 barrels of oil equivalent per day (100%) during 2014. Total E&P Nigeria Limited and Nigerian Agip Oil Company Limited have also assigned their interests of 10% and 5% respectively in the lease, ultimately giving Eroton Consortium a 45% interest in OML18. All approvals have been received from the relevant authorities of the Federal Government of Nigeria.
“At the sovereign level, yield on debt instruments (both local and Euro bonds) might rise although I believe that the level of foreign participation in the local market has reduced and as such there might not be a new round of downward pressure on the markets,” said Abiodun Keripe, Head of Research and Strategy, Elixir Investment Partners Limited.
The Nigerian banking sector may also face asset quality, profitability, and potentially liquidity pressures in the next year, with the sources of weakness likely to be around oil loans, utilities, manufacturing, and U.S. dollar exposures, according to S & P.
