New Telegraph

How JP Morgan’s affects Nigeria’s investment ratings –Elumelu, others

Investment bankers, JP Morgan Chase & Co on Wednesday delisted Nigeria from its emerging markets list, raising issues about what happens to Nigeria’s debt pricing and the value of the unstable Naira which has depreciated by over 209.2 per cent, since December 2015. PAUL OGBUOKIRI and ABDULWAHAB ISA report

 

Why JP Morgan acted against Nigeria

 

Indication was that JP Morgan decision delisting Nigeria from its emerging markets list is rooted in the inability of the Nigeria National Petroleum Corporation Limited (NNPCL) to transfer three-month oil revenue.

 

According to Reuters, the bank analysts said Nigeria’s national oil company (NNPC) did not transfer any revenue to the government from January to March this year due to petrol subsidies and low oil production.

 

The bank added that it moved Nigeria out of the ‘overweight’ category due to its fiscal woes amid a worsening global risk backdrop that has raised market concerns despite a positive oil environment. While the rest oil producing nations cash in on a Russia- Ukraine window war, and are harvesting bountifully from high price of crude oil and increase in output at the global market, Nigerian National Petroleum Company Limited, NNPCL, is laid back, unable to remit a dime as oil proceeds to the government’s purse.

 

Fuel subsidy regime financing and persistent low crude oil production due to massive theft undeniably rubs off Nigeria  accrued gains. With the foregoing development, JP Morgan emerging market sovereign recommended that investors should be ‘overweight’ citing fiscal challenges. It said Nigeria failed to take advantage of high oil prices.

 

Action lowers Nigeria’s investment ratings

 

The move by the American giant investment banker, according to analysts could worsen the ability of Nigeria’s companies that borrowed in dollars to repay such credits as dollar crunch persists while also leading to further depreciation of the naira against global currencies.

 

This is as JP Morgan said that “Nigeria’s fiscal woes amid a worsening global risk backdrop have raised market concerns despite a positive oil environment”. Analysts were of the view that, for a country already confronted with myriads of economic challenges, JP Morgan’s decision was a minus to Nigeria’s struggling economy.

 

According to the chairman of Heir Holdings, Tony Elumelu, Nigeria is losing substantial private capital as a result of policy inconsistency and oil theft. Elumelu, who is also Chairman of the UBA Group, speaking at the 2022 African Finance Corporation (AFC) conference in Abuja, said investment perception on Nigeria was not looking good due to several reasons.

 

He said: “When we have policy inconsistencies, policy instability and insecurity, it affects our business perception and investment decisions. In business, perception counts. “These issues also affect our attraction of  global private capital across the world. Perception is everything.” Citing the delisting of Nigeria by JPMorgan on the list of emerging markets, Elumelu said such action from a notable American lender puts Nigeria’s investment ratings low.

 

He said Nigeria and many other African businesses must understand that what happens in Abuja affects industry players in Nigeria and the larger global village.

 

Speaking with Sunday Telegraph, Financial Adviser, Wealth Creation Expert, Gabriel Mr. Idakolo, said: “The major implications of Nigeria’s removal from the list is that our sovereign debt package will no longer be attractive to major investors because the rating by the bank is an assurance that our debt stock will perform well and will be profitable.

 

“This could also cause the Federal Government not to realise as much as expected in both local and foreign bond markets as anticipated. “The major reason given by JP Morgan is that NNPC has not been remitting to the Federal Government revenues accruing from oil sales due to high subsidy payments,” he said.

Reinstating Nigeria to the emerging

 

markets list On what could be done to ensure reinstatement of Nigeria to the Index list, Idakolo said: “The Nigerian government needs to ensure sustainability in local refining by ensuring that both governments’ owned and private refineries are performing optimally.”

 

He also called on the Federal Government to also find a lasting solution to oil theft that has robbed the country of vital revenues as the country is reported to be losing substantial quantities of its crude oil to thieves. “Due to these two major problems Nigeria has not been able to take advantage of the rising cost of crude oil in the international market,” he stated.

 

Also, Mr. Johnson Ogunsola, a Financial Analyst, said the de-listing of Nigeria from the JP Morgan bond index list would have significant downside implication on the Naira. Ogunsola made the statement in an interview with newsmen in Abuja.

 

He said the delisting, if it eventually happened, would trigger a massive sell-off of Nigerian fixedincome assets by foreign investors tracking the bond index. “It will further increase risk premium investors to require holding the Federal Government bond securities,” he said.

 

He said that the decision of the apex bank to stop banks from selling dollars sourced from the CBN among themselves was expected to further increase the pressure in the foreign exchange market.

 

According to him, analysts view the increase in the net open position of banks to 0.5 per cent as a positive step in easing liquidity pressure in the Foreign Exchange market. This, he said, would further narrow liquidity in the interbank segment of the market and restrict easy movement of capital by foreign investors.

 

“We believe that this will rather increase the likelihood of the removal of Nigeria from the JP Morgan bond index,” he added.

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