Fitch upgrades Lagos State ratings to AAA, attests to its good standing, resilience

An internationally-renowned rating agency, Fitch Ratings, has upgraded Lagos State ratings from AA+ to AAA for its good standing in terms of debt sustainability and resilience.

Communicating the development to the Commissioner for Finance, Dr. Rabiu Olowo, FitchRatings said the feat was published in the 2020/2021 rating report, noting that the upgrade of the national long-term rating reflects Lagos State’s strength compared with national peers, as well as its resilient operating performance during the pandemic.

The congratulatory message, signed by the Senior Director, Head Sub-Saharan Africa, Mr. Andrew Parkinson, said: “I just want to say congratulations on the upgrade to AAA (nga). This is a fantastic achievement and an endorsement of all the good works going on.”

He stated that the current rating underpins the state’s capacity to service its financial obligations owing to its stronger operating performance driven by Internally-Generated Revenue (IGR), which makes Lagos an outliner in the national context.

“The assessment reflects Fitch’s view of risk relative to international peers with the ability to recover debt service with the operating balance,” he said.

According to Fitch, Lagos benefits from a solid revenue structure driven by IGR, which represents 70 per cent of its N620 billion operating revenue at the end of 2020.

The company maintained that the state had embarked on a number of finance cost-saving initiatives over the years through restructuring of local borrowings to reduce overall debt service obligations, pointing out that in November 2020, Lagos fully retired its N87.5 billion bond and also conducted an early redemption of its Programme 3 Series II (Tranches I &III) as well as series 1 Bond in February 2021 and June 2021 respectively.

It would be recalled that the state opted to call the bonds to take advantage of low yield environment (general low-interest rate) in the money and debt market while making significant savings in the overall cost of debt service. It has started the process of new bond issuance at a lower coupon to replace the recalled bond and is poised to effectively increase its financial performance each year.

Lagos State’s reputation is not in doubt and this can be testified in its ratings nationally and internationally. Furthermore, the State Government has successfully restructured all existing loan facilities and brought about a reduction in interest rates from an average of 18% to 12%., and delivered huge savings on the State’s debt servicing cost thereby easing cash flow.

As further testimony to the credibility of Lagos State, the N100Bn Bond that was issued in January 2020 was listed early this year on the FMDQ Exchange, NG Exchange. This has also given greater visibility to the State, ensured transparency as well as increased the Bond Holders confidence.

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