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Rating Action:

Moody's assigns B1 rating to the Government of Benin's first SDG bond issuance

15 Jul 2021

New York, July 15, 2021 -- Moody's Investors Service ("Moody's") has today assigned a B1 senior unsecured rating to the Government of Benin's planned euro-denominated bond issuance.

The B1 debt rating reflects the long-term issuer rating of the Government of Benin. According to the terms and conditions available to Moody's, the new issuance will constitute direct, unsecured, unconditional and unsubordinated obligations of the government of the Republic of Benin (the issuer). The bonds will rank pari passu with all other current and future unsubordinated and unsecured external indebtedness of the issuer.

This bond is issued under Benin's recently published Sustainable Development Goals (SDGs) Bond Framework which incorporates in all the public actions a significant portion of the United Nations 2030 Agenda. The proceeds of the bond are intended to finance eligible projects under the country's SDG framework.

RATINGS RATIONALE

The government of Benin's long-term issuer rating at B1 is supported by its economic resilience, with robust growth prospects reinforced by ongoing structural reforms. Benin's credit profile also benefits from a track record of fiscal consolidation (notwithstanding the temporary disruption to fiscal metrics caused by the pandemic) and improvements in the country's debt structure. Its membership to the West African Economic and Monetary Union (WAEMU) supports price stability and reduces the risk of balance of payments crisis.

The issuer rating at B1 also captures structural credit challenges including the small scale of the economy, which remains mostly reliant on subsistence agriculture, low income levels, a narrow tax base and weak, although improving, institutional and governance strength.

The stable outlook on the issuer rating reflects Moody's expectation that the economy will remain resilient in the face of ongoing global uncertainty stemming from the coronavirus pandemic, returning to robust growth rates, and that the government debt burden will stabilize and gradually decline from 2021 onwards.

The proceeds of the bond are intended to finance eligible projects under the country's SDG framework. The latter has been independently and separately certified best in class by a second party reviewer Vigeo-Eiris -- a Moody's ESG solutions company. The issuer has also partnered with the Sustainable Development Solutions Network (SDSN) -- an organization under the United Nations -- which will monitor over time the progress made by the issuer towards SDGs, increasing transparency and accountability.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

Benin's ESG Credit Impact Score is highly negative (CIS-4), reflecting high exposure to social (S) risk, moderate exposure to environmental (E) risk, and weak governance that, together with low income levels, reduce the country's resilience to S and E risks.

Benin's exposure to environmental risks is moderately negative, reflected in its E-3 issuer profile score. While the country pursues its efforts to preserve its natural capital, its exposure to physical climate risk is high given the economic importance of the primary sector, dominated by cotton and subsistence agriculture which is less resilient than sophisticated agriculture to climate-related disruptions.

Exposure to social risks is highly negative (S-4 issuer profile score), mainly related to poverty, poor educational outcomes, low income levels and poor access to basic services. Around half of the population lives below the poverty line (PPP $1.90 per day), and the country ranks poorly (lowest decile) in terms of education, health and income. Despite its track record of political stability, there is risk of social unrest, especially given the level of youth unemployment.

Benin's institutions and governance profile is weak and captured by a moderately negative G issuer profile score (G-3). This is illustrated by the country's low worldwide governance indicators with some indicators, especially voice and accountability and control of corruption, that are better than their respective median of B-rated peers.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

A sustained and material reduction of the government debt burden and debt affordability beyond Moody's current expectations would put upward pressure on the rating, particularly if evidence of a sustained improvement of Benin's institutions and governance framework.

Negative pressure on the rating could arise were Benin's fiscal metrics to deteriorate markedly against Moody's current expectations of a steady and structural improvement in the wake of the pandemic. An increase in ongoing borrowing requirements and refinancing risks driven by a failure to sustain the reform effort would be particularly negative. Similarly, a failure to return to robust rates of growth as Moody's currently expects would also be credit negative, particularly if driven by weaker than expected policy outcomes.

This credit rating and any associated review or outlook has been assigned on an anticipated/subsequent basis. Please see the most recent credit rating announcement posted on the issuer's page on www.moodys.com, under the research tab, for related summary rating committee minutes included in rating announcements published after June 3, 2013.

The principal methodology used in this rating was Sovereign Ratings Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The local market analyst for this rating is Aurelien Mali, +971 (423) 795-37.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Elisa Parisi-Capone
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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