Fitch Affirms Lagos at 'BB-', Outlook Negative; Withdraws Kaduna Ratings

Fitch Ratings has affirmed Lagos State's Long-term foreign currency Issuer Default Ratings (IDRs) at 'BB-' with Negative Outlook and Short-term foreign IDR at 'B'.

According to Reuters, the Long-term local currency IDR and the National Long-term rating have also been affirmed at 'BB-' and 'AA+(nga)', respectively, with Stable Outlooks.

The agency has simultaneously affirmed the region's N275bn MTN programme as well as its N57.5bn and N80bn bonds, maturing in 2017 and 2019, respectively, at Long-term local currency 'BB-' and National Long-term 'AA+(nga)'.

Key Rating Drivers
The affirmation reflects Fitch's expectations of Lagos' continued strong operating performance, on-going efforts in improving transparency and the administration's sophisticated management conducive to growing private sector investments.

The ratings also take into account the state's weak socio-economic indicators by international standards.

The Negative Outlook on the Long-term foreign currency IDR reflects that of Nigeria (BB-/Negative).

Fitch expects Lagos' revenue to remain highly diversified compared with the national average, making the state's budget more resilient to oil price fluctuations. Operating revenue, mainly driven by service and tertiary sectors, is expected to continue growing towards N450bn over the medium term (N400bn in 2014), while internal generated revenues (IGRs) will dominate at 75%-80% of total revenue (70% in 2012). This, in tandem with the administration's commitment to keep cost growth under inflation (7%-8%), should be conducive to achieving an operating margin of near 50% over the medium term.

Political continuity from the 2015 elections outcome should lift capital spending to N250bn per year over the medium term, from about N200bn in 2014.

Fitch believes that the state will maintain its commitments in investing in transport (including a light metro transit and a motorway), water, health, education (child-care centres) and social protection.

Fitch Withdraws Kaduna State Ratings
Fitch Ratings has withdrawn Kaduna State's Long-term foreign and local currency Issuer Default Ratings (IDRs) of 'B+', and its National Long-term rating of 'A+(nga)', all with Stable Outlooks.

Fitch has withdrawn the ratings as Kaduna State has chosen to stop participating in the rating process.

Therefore, Fitch will no longer have sufficient information to maintain the ratings. Accordingly, Fitch will no longer provide ratings or analytical coverage for Kaduna State.