Economy
Fitch Affirms Lagos at ‘B+’; Outlook Negative
By Modupe Gbadeyanka
One of the world’s leading rating agencies, Fitch Ratings, has affirmed Lagos State’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘B+’ with Negative Outlook and Short-Term Foreign Currency IDR at ‘B’.
The National Long-Term Rating has been affirmed at ‘AA+(nga)’, with a Stable Outlook. The ratings on the state’s MTN programme as well as senior unsecured bonds have also been affirmed at ‘B+’.
According Fitch in a statement issued on Friday, the affirmation reflects the state’s weak socio-economic indicators by international standards.
It also reflects Fitch’s expectations of resilient operating performance in the medium term adequate transparency compared with national standards and satisfactory debt metrics. The Negative Outlook reflects that of Nigeria (‘B+’/Negative).
KEY RATING DRIVERS
Fiscal Performance: Lagos benefits from a diversified revenue structure, and especially from strong internally generated revenues (IGR), which we expect to support our forecast of an operating margin of around 50% over the medium term.
This, in tandem with the administration’s commitment to keep cost growth under double-digit inflation, should mitigate pressure from a potential decline in oil-related state statutory allocations from the Federal Accounts Allocation Committee (FAAC).
Management: After a 20% drop in 2015, Fitch expects political continuity following last elections to boost capex over the medium term up to an annual average of NGN450bn over 2017-2019, mostly focused on transportation, water, health, education and social protection. We expect the administration’s efforts to improve transparency and accountability, together with a larger recourse to public-private partnerships, will attract foreign investments and, ultimately, sustain the state’s revenue.
Debt and Liquidity: Lagos’ debt will grow over the medium term up to NGN1trn or over 150% of tax revenues, driven by a demanding capex programme and the negative effect of the Naira devaluation. Fitch expects debt sustainability to remain adequate, with a pay-back (debt-to-current balance) ratio of around three years. Liquidity, averaging NGN100bn over the medium term and equivalent to approximately 1x annual debt service requirements, should not be a risk.
Economy; Despite its weak socio-economic indicators by international standards, Lagos is considered Nigeria’s economic powerhouse as its GDP accounts for 20%-25% of national GDP. Domestic production is fuelled by its diversified economy, with services, construction, transport and industry making up 80% of the local economy. Given its limited reliance on oil- related activities, Fitch believes that Lagos’ socio-economic indicators will further improve as we forecast local GDP growth to outperform national real GDP growth, at 4.5%-5.5% in 2016-2017.
RATING SENSITIVITIES
A downgrade of the sovereign’s ratings would lead to a corresponding action on Lagos’ IDRs. In the absence of a sovereign downgrade, an operating margin declining towards 30%, unfavourable changes in the national tax policy, debt rising beyond Fitch’s expectations over the medium term and economic instability, even at the local level, could lead to a downgrade.
A sovereign upgrade may be reflected in Lagos’ ratings, provided that budgetary improvements reduce debt levels to 1x the budget size. Further improvement of the local economy giving additional boost to IGR would also be positive for the ratings.
By Modupe Gbadeyanka
The federal government has been asked by the Nigerian Bar Association (NBA) to suspend the implementation of the controversial tax laws.
In a reaction to the tax reform acts, the president of the group, Mr Afam Osigwe (SAN), the suspension of the laws would allow for a proper investigation into allegations of alterations in the gazetted and harmonised copies.
A member of the House of Representatives, Mr Abdussamad Dasuki, alleged that some parts of the laws passed by the parliament were different from the gazetted copy.
To address the issues raised, the NBA said it is “imperative that a comprehensive, open, and transparent investigation be conducted to clarify the circumstances surrounding the enactment of the laws and to restore public confidence in the legislative process.”
“Until these issues are fully examined and resolved, all plans for the implementation of the Tax Reform Acts should be immediately suspended,” the association declared.
It noted that the controversies “raise grave concerns about the integrity, transparency, and credibility of Nigeria’s legislative process.”
“These developments strike at the very heart of constitutional governance and call into question the procedural sanctity that must attend lawmaking in a democratic society,” it noted.
“Legal and policy uncertainty of this magnitude has far-reaching consequences. It unsettles the business environment, erodes investor confidence, and creates unpredictability for individuals, businesses, and institutions required to comply with the law. Such uncertainty is inimical to economic stability and should have no place in a system governed by the rule of law.
“Nigeria’s constitutional democracy demands that laws, especially those with profound economic and social implications, emerge from processes that are transparent, accountable, and beyond reproach. Anything short of this undermines public trust and weakens the foundation upon which lawful governance rests.
“We therefore call on all relevant authorities to act swiftly and responsibly in addressing this controversy, in the overriding interest of constitutional order, economic stability, and the preservation of the rule of law,” the organisation stated.
By Adedapo Adesanya
Demand for hot stocks, including MRS Oil Plc, buoyed the NASD Over-the-Counter (OTC) Securities Exchange by 0.52 per cent on Tuesday, December 23.
The energy company was one of the three price gainers for the session as it chalked up N19.69 to sell at N216.59 per share versus the previous day’s value of N196.90 per share.
Further, FrieslandCampina Wamco Nigeria Plc gained N2.95 to close at N56.75 per unit versus N53.80 per unit and Golden Capital Plc appreciated by 84 Kobo to N9.29 per share from Monday’s N8.45 per share.
Consequently, the market capitalisation went up by N10.95 billion to N2.125 trillion from N2.125 trillion and the NASD Unlisted Security Index (NSI) rose by 18.31 points to 3,570.37 points from 3,552.06 points.
Yesterday, the NASD bourse recorded a price loser, the Central Securities Clearing System Plc (CSCS), which gave up 17 Kobo to close at N33.70 per unit against the previous trading value of N33.87 per unit.
The volume of securities traded at the session went down by 97.6 per cent to 297,902 units from the previous day’s 12.6 million units, the value of securities decreased by 98.5 per cent to N10.5 million from N713.6 million, and the number of deals remained flat at 32 deals.
By value, Infrastructure Credit Guarantee Company (InfraCredit) Plc ended as the most actively traded stock on a year-to-date basis with 5.8 billion units exchanged for N16.4 billion. This was followed by Okitipupa Plc, which traded 178.9 million units valued at N9.5 billion, and MRS Oil Plc with 36.1 million units worth N4.9 billion.
In terms of volume, also on a year-to-date basis, InfraCredit Plc led the chart with a turnover of 5.8 billion units traded for N16.4 billion. Industrial and General Insurance (IGI) Plc ranked second with 1.2 billion units sold for N420.7 million, while Impresit Bakolori Plc followed with the sale of 536.9 million units valued at N524.9 million.
By Dipo Olowookere
It was another bullish trading session for the Nigerian Exchange (NGX) Limited as it closed higher by 0.59 per cent on Tuesday.
The market further rallied due to continued interest in large and mid-cap stocks on the exchange by investors rebalancing their portfolios for the year-end.
Yesterday, Aluminium Extrusion sustained its upward trajectory after it further appreciated by 9.96 per cent to N14.90, as Austin Laz gained 9.81 per cent to close at N2.91, Custodian Investment improved by 9.69 per cent to N38.50, and First Holdco soared by 9.35 per cent to N50.30.
Conversely, Royal Exchange declined by 7.22 per cent to N1.80, Champion Breweries shrank by 6.57 per cent to N15.65, NASCON lost 5.36 per cent to trade at N105.05, Sovereign Trust Insurance depreciated by 5.28 per cent to N3.77, and Japaul went down by 4.51 per cent to N2.33.
At the close of business, 29 shares ended on the gainers’ table and 27 shares finished on the losers’ log, representing a positive market breadth index and bullish investor sentiment.
This raised the All-Share Index (ASI) by 895.06 points to 153,354.13 points from 152,459.07 points and lifted the market capitalisation by N579 billion to N97.772 trillion from the previous day’s N97.193 trillion.
VFD Group finished the day as the busiest stock after it recorded a turnover of 192.0 million units worth N2.1 billion, GTCO exchanged 63.5 million units valued at N5.6 billion, Access Holdings traded 49.8 million units for N1.0 billion, First Holdco sold 45.8 million units valued at N2.3 billion, and Secure Electronic Technology transacted 38.3 million units worth N28.4 million.
In all, market participants bought and sold 677.4 million units valued at N20.8 billion in 27,589 deals compared with the 451.5 million units worth N13.0 billion traded in 33,327 deals on Monday, showing an improvement in the trading volume and value by 50.03 per cent and 60.00 per cent apiece, and a shortfall in the number of deals by 17.22 per cent.
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