Macro Analysis / Global

S&P lowers Sri Lanka's sovereign rating to B-; Outlook ‘Stable’

  • Continued losses at State-Owned Enterprises highlighted as key risk
  • Expectation of bilateral and multilateral assistance keeps the outlook at “Stable”
  • Low probability of a further downgrade in the near term in our view
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S&P downgraded Sri Lanka’s Sovereign credit rating from ‘B Negative’ to ‘B- Stable’ yesterday, owing to fiscal and debt repayment concerns. The expectation of bilateral and multilateral assistance to help the country meet its near-term debt obligations keeps the outlook at “Stable” in the lower rating category. This follows Fitch Rating’s rate cut to B- with a Negative outlook in late April, while Moody’s has placed the Sovereign rating under review.

According to S&P, Sri Lanka’s fiscal position looks to widen owing to the January tax cuts and import controls resulting in lower government revenue. S&P states that this, in turn will worsen the risk associated with the country’s debt repayments. In addition, the rating agency expects the currency depreciation (we forecast a 12.2% - 16.0% YoY depreciation) and a smaller revenue base to adversely impact interest repayments, resulting in interest payments reaching 67.2% of revenues in 2020 (47.7% in 2019).

A key concern highlighted is the risk arising from continued losses in State-Owned Enterprises, namely the Ceylon Petroleum Corporation (CPC), Ceylon Electricity Board (CEB) and Sri Lankan Airlines (SLA). While lower global oil prices are likely to help curb losses at CPC and CEB, S&P expects SLA to face continued losses owing to the COVID-19 impact on tourism. 

S&P stated that 1) non-materialisation of multilateral and bilateral assistance and 2) greater deterioration of external imbalances leading to a sustained decline in forex reserves will result in a further downgrade as a result of debt servicing concerns.

A credible improvement in the country’s fiscal and debt metrics could lead to an upward rating, according to S&P. 

2020 forecasts S&PAsia Securities

GDP growth (%)


(4.0) - (4.5)

Fiscal deficit (% of GDP)


8.9 - 10.7

Government revenue (% of GDP)

< 10.0

8.5 - 11.00

Current account deficit (% of GDP)


4.0 - 4.5

Govt debt (% of GDP)

> 90.0

87.0 – 95.0

Source: S&P, Asia Securities

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Fixed Income Analysis / Nigeria

Nigerian banks: Black gold down

  • Within our coverage universe, Nigerian banks are among the most exposed to the vagaries of the market for crude oil
  • Nigerian bank bonds are 80-220bps wider than on 6 March
  • We discuss 8 key issues, including asset quality and potential currency weakness
Tolu Alamutu @ Tellimer Research
9 March 2020

Within our coverage universe, Nigerian banks are among the most exposed to the vagaries of the market for crude oil. Lending to companies in the oil and gas sector remains significant. Added to this, the banks remain key holders of all forms of Nigerian government securities. As is well known, the sovereign is reliant on oil sales to generate foreign currency earnings. In light of recent events, we discuss 8 key talking points regarding Nigerian banks: 

  1. It’s a smaller eurobond market than before. 
  2. No Nigerian bank eurobonds mature this year. 
  3. Exposure to the oil and gas sector is still significant. 
  4. Our asset quality stress test shows banks’ resilience.
  5. This time may be a bit different - the Trans Forcados Pipeline is in operation.
  6. Increased taxes, levies are risks. 
  7. Risks to the NGN cannot be ignored.
  8. Downgrades are possible – most ratings already carry negative outlooks. 

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