S&P: Rivers outlook revised to negative; ‘B’ rating affirmed

The Standard & Poor’s Ratings Services has revised its outlook on Rivers State to negative from stable.

It also affirmed its ‘B’ foreign and local currency long-term issuer credit ratings on Rivers and lowered its national scale rating on the state to ‘ngBBB’ from ‘ngBBB+’.

“The rating action reflects our view that the fall in oil prices has created additional risks to Rivers’ liquidity position and budgetary performance metrics,” S&P said in a statement.

“Large loan repayments in 2014 have partly depleted the cash reserves of Rivers State. Also, the state’s financial planning capacity is still low. In this context, lower oil prices may undermine oil revenue proceeds in 2015.”

For the time being, this risk is mitigated by large operating surpluses, healthy and improving debt metrics, and a track record of smooth relationships with domestic banks, according to S&P.

The ratings action on Rivers factor in S&P’s assessment of Nigeria’s institutional framework as very volatile and underfunded in an international context, reflecting its exposure to oil revenue volatility as well as its opinion of low transparency and disclosures.

Other rating constraints include very weak financial management, a very weak economy by international standards, and less than adequate liquidity, as S&P’s criteria define these terms.

The ratings are supported by Rivers’ position as a major oil and gas producer in Nigeria, which enables the state to post a strong budgetary performance and have slightly higher wealth compared with other Nigerian states.

Rivers also has a very low debt burden relative to international peers and moderate contingent liabilities, according to S&P.

The framework for Nigerian states is based on oil revenue distribution rules among and within government tiers.

The negative outlook reflects S & Ps view that, over the next year, Rivers’ liquidity position may deteriorate if borrowings are higher than currently expected and if Rivers’ savings continue to be depleted because budgetary performance is worse than current estimates.