GCR Upgrades Africa Finance Corporation rating to AA+(NG); outlook - Positive

05 Dec 2014 In Rating Notifications

GCR Upgrades Africa Finance Corporation rating to AA+(NG); outlook - Positive

Lagos Nigeria, 4 December 2014 - Global Credit Ratings has upgraded the long term national scale rating of Africa Finance Corporation to AA+(NG), and affirmed the short term rating at A1+(NG), with the outlook accorded as Positive.

RATING RATIONALE

Global Credit Rating (“GCR”) has accorded the above credit ratings to Africa Finance Corporation based on the following key criteria:

Africa Finance Corporation (“AFC” or “the Corporation”) enjoys supranational status, being a creation of treaties among several African countries. As such, it is not subject to local laws and enjoys diplomatic immunity in its member countries. The Central Bank of Nigeria (“CBN”) holds 42.5% of the Corporation’s shares at FYE13.

With total capital of US$1.3bn, and a risk weighted capital adequacy ratio of 75.4% at FYE13, AFC’s capitalisation is considered generous, but may be somewhat reduced by a planned dividend distribution of US$44m. Positively considered is increased diversification of funding in F13 – primarily through borrowings from multilateral finance institutions and international commercial banks.

Asset quality indicators appear strong, with no impaired loans reported at FYE13. This is supported by the Corporation’s strict credit approval process, which restricts exposures to only credible counterparties. Also, loans granted by the Corporation are usually secured against the sponsor’s assets or the asset being financed.

The quality and highly liquid nature of the balance sheet is also noted, with cash and cash equivalents accounting for 36.9% of total assets, while investment securities (comprising fixed income and equity securities) constituted 31.5% as at FYE13 (FYE12: 17.6%).

Net interest margin reduced to 5.4% (FYE12: 6.2%), as increased borrowings impacted interest expense (which rose by over 300%) in F13. Nevertheless, the Corporation recorded net income of US$80.1m in F13, representing a 5.1% growth from F12. ROaE in F13 also improved to 6.4% (F12: 6.3%), while ROaA reduced to 4.4% from 5.2% in F12.

Although the Corporation has invested in about 10 countries, cognisance was taken of the limited geographic diversification of the portfolio, with the investment and loan portfolios remaining largely concentrated in Nigeria, at 71.4% and 53.6% of the respective totals.

Management’s ability to successful grow the Corporation in terms of size, funding and project financing without negatively impacting profitability and/or asset quality may be positively considered. A significant decline in profitability, efficiency and asset quality may result in a negative rating impact.


NATIONAL SCALE RATINGS HISTORY

Initial rating (May 2012)
Long term rating: AA(NG)
Short term rating: A1+(NG)
Rating outlook: Stable

Last Rating (September 2013)
Long term rating: AA(NG)
Short term rating: A1+(NG)
Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Funmilayo Ojatunwase
Credit Analyst
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Committee chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Banking Criteria (updated April 2014)
Glossary of Terms/Ratios (February 2014)
Previous Rating Reports (up to 2013)


SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The ratings were solicited by, or on behalf of, Africa Finance Corporation, and therefore, GCR has been compensated for the provision of the ratings.

Africa Finance Corporation participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to Africa Finance Corporation with no contestation of the ratings.

The information received from Africa Finance Corporation and other reliable third parties to accord the credit rating included the 31 December 2013 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements up to 31 December 2014 and unaudited financial statements to 30 August 2014. In addition, information specific to the rated entity and/or industry was also received.

 

 

 

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