African Finance Corporation AFC has been reacting to its rating by Moody’s Investor Services which turned from stable to negative due to the covid-19 pandemic recently. On May 6,2020 the AFC noted that Moody’s Investor
Services affirmed the Africa Finance Corporation’s (“AFC” or “the Corporation”) long-term issuer and senior unsecured ratings at A3. Concurrently, Moody’s also affirmed the Corporation’s provisional long-term foreign currency senior unsecured MTN programme rating at (P)A3, the short-term issuer rating at P-2 and the short-term rating at (P)P-2. The outlook has however changed from stable to negative.
According to Moody’s, the main driver for the change in outlook from stable to negative was the potential impact on AFC’s Capital Adequacy Ratio (“CAR”) of worsening asset performance due to the very severe COVID-19 driven economic shock across sub-Saharan Africa. AFC has maintained CAR of above 30% since inception consistent with internal prudential guidelines and as at 31 December, 2019 had a capital adequacy ratio of 32.9%.
Samaila Zubairu, President & CEO of AFC said: “The COVID-19 pandemic has unleashed economic disruption across the world, including Africa. With the health and economic crises still unfolding, great uncertainty remains on the duration and impact of the virus outbreak. While addressing the COVID-19 pandemic must be the global priority, the virus will be defeated and when it is, Africa is positioned for transformational and beneficial change.
The continent’s vast natural resources, ripe opportunities for industrialisation, diversification and value-add processing, growing and predominantly young population, rising demand and the expected boost to intra-African trade are all factors that make Africa’s economic growth prospects highly attractive. Delivering first-world infrastructure projects is also needed to unlock the potential and that is where AFC will be adding both value and impact by making infrastructure projects bankable and facilitating the financing.”
We note that Moody’s expects the Corporation as an A3 rated institution to sustain its strong liquidity buffers thanks to AFC’s significant existing buffers available at the start of the crisis, adherence to its liquidity
policy, in addition to the Corporation’s stable and diverse sources of funding over the medium term. AFC’s liquidity policy stipulates that the Corporation must retain liquidity buffers covering 18 months of net cash outflows. Currently, the Corporation’s liquidity buffer stands at 23 months cover.
AFC’s ongoing capital raising exercise, which commenced prior to the COVID-19 crisis, has received strong support, with new capital injections already in place from the African Development Bank, the Government of Gabon and the Arab Bank for Economic Development in Africa, despite the challenging economic environment in 2019. This ongoing process is creating sufficient capacity for the Corporation to continue to adhere to its internal policy of a minimum CAR of 30%, whilst funding its strategic growth targets over the medium and long term.
AFC is Africa’s most important infrastructure, industrial and natural resources development and financing institution, and is steadfast in its commitment to provide the innovative and risk-mitigated solutions needed for Africa’s policy makers as well as its young and vibrant population.
Our approach will remain conservative and innovative, with a beneficiation-based, ecosystem-focused development strategy, which will continue to create sustainable, value-accretive and employment generating economic growth, supported by quality infrastructure.
The support we continue to receive from our investors, member countries and development partners demonstrates that our mission of financing and facilitating Africa’s infrastructure needs aligns with a shared vision for an industrialised and prosperous Africa, where commercial returns can be achieved for global capital channeled through credible African institutions such as the AFC.
AFC believes it is a “prudent,and resilient multilateral financial institution guided by conservative financial policies, and this is reflected in our A3 credit rating.”
The bank said that :” The Corporation entered this period of global economic stress with robust capital and liquidity buffers, as well as strong prospects for replenishing these further.”
Popular Posts
