OREANDA-NEWS. Fitch Ratings has revised the Outlook on the Nigerian State of Lagos' Long-term foreign currency Issuer Default Rating (IDR) to Negative from Stable. The agency has also affirmed the Long-term foreign and local currency IDRs at 'BB-' and its National Long-term rating at 'AA+(nga)'. The Outlooks on the local currency IDR and on the National Long-term rating remain Stable.

The agency has simultaneously affirmed the Long-term rating of 'BB-' and National Long-term rating of 'AA+(nga)' of its NGN275bn MTN programme as well as its NGN57.5bn and NGN80bn bonds, maturing in 2017 and 2019, respectively.

Under EU credit rating agency (CRA) regulation, the publication of local and regional government (LRG) reviews is subject to restrictions and must take place according to a published schedule, except where it is necessary for CRAs to deviate from this in order to comply with their legal obligations. Fitch interprets this provision as allowing us to publish a rating review in situations where there is a material change in the creditworthiness of the issuer that we believe makes it inappropriate for us to wait until the next scheduled review date to update the rating or Outlook/Watch status.

The next scheduled review date for Fitch's ratings on Lagos State was originally 11 September 2015. However, following the downgrade of Nigeria's Outlooks we have taken a similar rating action on Lagos State as the issuer is rated at the same level as the sovereign for the Long-term foreign currency IDR.

KEY RATING DRIVERS

The rating action on Lagos follows the same on Nigeria's sovereign Long-term IDR's Outlook on 30 March (see ' Fitch Affirms Nigeria at 'BB-'; Outlook Revised to Negative ' at www.fitchratings.com).

The rating action reflects the application of Fitch's 'International Local and Regional Governments Rating Criteria - Outside United States', according to which subnationals' ratings usually cannotbe higher than their sovereign.

RATING SENSITIVITIES

An operating margin declining towards 30%, unfavourable changes in the national tax policy, debt rising beyond Fitch's expectations and economic instability, even at the local level, could lead to a downgrade. Also, a downgrade of the sovereign would prompt a similar action on the ratings of the state, as subnationals' ratings usually cannot be higher than their sovereign under Fitch's criteria.

Conversely, the Outlook could be revised to Stale if improvements in budgetary performance result in debt levels at 1x the budget size, while maintaining a high component of subsidised foreign loans (about 30% at end-2013), in turn lowering the debt servicing burden, and provided that the Outlook on the sovereign is also revised to Stable. Further improvement of the local economy giving additional boost to internally generated revenue would also be positive for the ratings.