Fitch upgrades Lagos to ‘AA+(nga)’; outlook stable

Fitch Ratings has upgraded Lagos State’s national long-term rating to ‘AA+(nga)’ from ‘AA(nga)’. The outlook is stable.

The agency has 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 N275 billion MTN programme, together with its N57.5 billion and N80 billion 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 state’s continued solid operating performance, improved transparency and efforts towards an increasingly sophisticated and transparent administration, which is conducive to growing private sector investments.

The rating action reflects the following rating drivers and their relative weights: High: Management and Administration: Fitch believes that Lagos management is becoming increasingly more sophisticated.

With the aim to progressively improve transparency and accountability to international standards, the state is improving its governance and disclosure, with budgets and quarterly performance being published on the official website, the rating agency said.

It said debt management has also improved, with longer bond tenures and more loans from development banks while ministerial departments continue to bolster collections of local taxes. With a local GDP accounting for 20%-25% of the national GDP, Lagos is a key driver of Nigeria’s economy despite being the smallest state by territory. Domestic production is fuelled by its diversified economy as a commercial hub in the country, with service, construction, transport and industry making up 80% of the local economy, it said.

Fitch 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.

(Reuters)