The Less, The Merrier
IN June 2026, Agusto & Co, a Nigerian rating agency, assigned an “A- “rating to Geregu Power Plc, a company in the same country dealing in power generation. A month later, Geregu defaulted on a bond obligation and the market went into a fiasco.
A rating is not infallible, and the Geregu saga underscores this point. That was not also the first time a company currently running on an investment grade would default. Afterall, Enron and Worldcom defaulted on enjoyed investment grade ratings, up to three months before they went under. But of a larger concern, according to some market participants, is the number of those licensed to provide rating and how this is likely to continue the market in the near to term.
Presently, there are three companies licensed by the Nigerian Securities and Exchange Commission (SEC) to assess credit worthiness of organizations (rating) seeking to raise funds in the N7 trillion ($5 billion) Nigerian non-bank corporate debt market.
Agusto which by its late founder whose name is shared with the company was a business research and intelligence company. It got the first rating licence from SEC in 2001 before DataPro and GCR joined the company later. GCR is an affiliate company of Moody’s, the third participant in the triumvirate dominating the global rating business. The other two are Standard & Poor’s as well as Fitch.
Together they share an estimated annual fee of about N1.6 billion, from the estimate provided by our sister company, Reap & Arcenciel Limited. This is still a far cry from what investment banks, the major drivers of activities in the debt issuance business, scoop from the debt issuance. But it is sizable for each player in the rating corner given the fact that over 120 investment banks have to struggle, sometimes in a red-ocean price cutting arrangement, for a share of the pie. “In the rating space of our business, the less the merrier”, joked an investment banker. A fee ranges between somewhere between N6 million and N20 million with GCR currently being the priciest.
GCR controls the lion share of the market in terms of value, according to our investigation. Its foreign-affiliation status may have been a factor. But this advantage may soon be lost as Moodys last month signed an agreement recently for a significant stake in Agusto.
Source: Reap & Arcenciel Limited
A rating is virtually compulsory for a debt issuance, so issuers have little room to wiggle out. But the oligopolistic nature of sector seems a constraint as rating agencies play the game of “price givers”, according to Mavin Odafe, an investment banker. “You are required to renew your rating annually at least if you want to continue accessing the market and that leaves you some significant cost on a regular basis. Annual review is not bad in so far, it does leave your account significantly depleted especially if you are not a big business”. For an issuance of N2 billion, a N10 million rating fee may seem like a chicken feed. But if this is added to all the regular finance cost for a business struggling with margins, this could be significant.
“SEC is probably focused on quality, given the sensitive nature of that business. Easy entry and exit may provide the ground for infiltration of quacks which the market cannot afford at this time of its development”, noted Samson Aiyedagbon, an equity analyst. But the Agusto narrative with the Geregu default may vitiate the quality argument. Restricting industry participation may as a matter of fact be a basis of quality dilution. An oligopolistic market leaves the table big enough for the few participants to share and be comfortable. In business theories, there is the foundation for collusion or the formation of a cartel.
The second point of concern is the increasing interest of global heavyweights in the Nigerian industry. On the same surface, it is a positive signal. “But it has the tendency to drive up fees in a market with few service providers. It will make the debt market a lot more elitist and that will not be good enough for small and medium sized companies interested in accessing the market”, Aiyedogbon noted. With Agusto and GCR in foreign hands, and maybe DataPro in the near to medium term, rating is gradually assuming the complexion of audit business, the big three without the small rats to mop up the crumbs from the feet of the masters. The audit business in Nigeria, and in many developed and emerging markets, is at least among the “top four” and the others. Afterall, there are many small audit firms which can still cater to the needs of small and medium sized businesses who cannot afford the fee of the big four. But in the Nigerian rating space, there are no others.
Rating cannot be as liberalized as the audit market, for sure. Though the United States market is much bigger, there are not fewer than 10 registered rating agencies. The “Big Three” still control over 90% but there are a few others that provide enough for small to medium sized companies looking to access equally smaller debt markets.
The regulatory environment still allows some small deals to go to the small accounting firms. The audit business is even tiered with some analysts even categorising the sector up to third or fourth tier. In rating, it is just one tier and nothing again. If the Nigerian rating space goes western, fee will certainly go up. A KPMG or PWC audit can engagement can cost as much as five to ten times an audit done by a firm fully owned by Nigerian partners. Certainly, a KPMG audit report carries a premium for an international or local debt issuance. But not every small spare part business wants to issue a GDR.
