Economy
Fitch Affirms AfDB’s Triple ‘A’ Rating With Stable Outlook
By Modupe Gbadeyanka
Renowned global rating agency, Fitch Ratings, has affirmed the African Development Bank’s (AfDB) Long-Term Issuer Default Rating (IDR) at ‘AAA’ with a Stable Outlook and its Short-Term IDR at ‘F1+’ (best quality grade, indicating exceptionally strong capacity to meet its financial commitments).
Fitch, in a recent statement, disclosed that the ‘AAA’ rating primarily reflects extraordinary support from AfDB’s shareholders which provides a three-notch uplift over the Bank’s intrinsic rating.
It specifically said, “AfDB enjoys strong support from its 80 member states, which include 26 non-African countries with high average ratings.
“Callable capital subscribed by member states rated ‘AAA’, the largest of which are the US, Germany and Canada, accounts for 21 percent of the total.
“This fully covered the Bank’s net debt at end-2016, underpinning the ‘aaa’ assessment of shareholders’ capacity to support.”
The report underscores the strong propensity of member states to support the Bank in case of need as illustrated by previous capital increases and the Bank’s important role in the region’s financing.
In the assessment, Fitch maintains that fast growth in AfDB’s lending in the last two years has translated into a rapid increase in its indebtedness, noting that the bank’s management has indicated that if there is no clear evidence of a capital increase within the next two years, it will have no choice but to curb lending growth to preserve the Bank’s solvency metrics.
The report added that if no capital increase is approved by 2019, debt will not be fully covered by callable capital from ‘AAA’ rated countries, adding that this would place substantial pressure on Fitch’s assessment of extraordinary support and, hence on AfDB’s IDR.
Fitch asserts that the relatively high risk profile of borrowers is mitigated by the preferred creditor status (PCS) that the Bank enjoys on its sovereign exposures.
Fitch assesses AfDB’s liquidity at ‘AAA’, which reflects excellent coverage of short-term debt by liquid assets (2.9x).
However, Fitch notes that the share of the portfolio invested in securities or bank placements rated ‘AA-‘ or above (83 percent in 2016) is declining, although their quality is still assessed at excellent.
Fitch understands that management intends to rebalance the treasury assets portfolio in order to increase the proportion of assets rated ‘AA-‘ or above.
This would help underpin Fitch’s assessment of the strength of extraordinary support, given the relevance of liquid assets’ quality to the net debt calculation.
“The -1 notch adjustment to AfDB’s solvency stemming from our assessment of its business environment reflects the high risk operating environment in which the bank operates,” the report says, noting that the majority of African countries are classified as low income by the World Bank.
The average income per capita and average rating of member states are the lowest of all regional MDBs, and they are subject to an overall high level of political risk.
Commenting on the rating, AfDB Acting Vice-President for Finance, Hassatou Diop N’Sele, said, “We welcome the confirmation of the AfDB’s AAA rating by Fitch, with a stable outlook. The Bank is dedicated to doing the most to make a marked positive difference in the lives of hundreds of millions of Africans, while at the same time preserving its financial integrity.
“Our High 5 agenda is our response to the need to accelerate and scale up Africa’s development to achieve the Sustainable Development Goals of the continent. The High 5 agenda, reflecting five identified priority areas (namely energy, agriculture, industrialization, integration and human capital development), enjoys strong support from our shareholders.
“The AfDB will continue to maintain a careful balance between maximizing its development effectiveness and assuring complete preservation of the interests of its stakeholders.”
By Dipo Olowookere
A 0.31 per cent gain was recorded by the Nigerian Exchange (NGX) Limited on Tuesday, helped by renewed bargain-hunting by investors, with the year-to-date return extending to 6.61 per cent.
It was observed that the growth achieved by Customs Street yesterday was supported by the banking and the industrial goods indices, which went up by 1.32 per cent and 0.69 per cent apiece.
They offset the losses recorded by the three other sectors, with the insurance counter down by 1.32 per cent, the consumer goods segment down by 0.23 per cent, and the energy space down by 0.17 per cent.
At the close of business, the All-Share Index (ASI) increased by 516.94 points to 165,901.57 points from 165,384.63 points and the market capitalization appreciated by N333 billion to N106.495 trillion from N106.162 trillion.
The market breadth index was positive yesterday after the bourse ended with 35 price gainers and 34 price losers, representing bullish investor sentiment.
The quartet of Industrial and Medical Gases (IMG), Union Dicon, Zichis, and Austin Laz chalked up 10.00 per cent each to sell for N34.65, N9.90, N5.06, and N4.07, respectively, while RT Briscoe appreciated by 9.95 per cent to N9.50.
On the flip side, Omatek lost 10.00 per cent to trade at N2.43, Cutix also fell by 10.00 per cent to N3.15, Union Homes shrank by 9.95 per cent to N76.90, Sunu Assurances declined by 9.94 per cent to N4.62, and Deap Capital crashed by 9.93 per cent to N7.62.
During the trading day, 736.4 million stocks worth N24.7 billion exchanged hands in 46,026 deals compared with the 762.8 million stocks valued at N18.4 billion traded in 55,374 deals a day earlier, indicating a rise in the trading value by 34.24 per cent, and a slip in the trading volume and number of deals by 3.46 per cent and 16.88 per cent apiece.
The activity chart was led by volume on the second trading session of the week by GTCO with 65.9 million equities valued at N6.5 billion, Chams transacted 55.7 million shares worth N249.8 million, Custodian Investment traded 49.8 million stocks for N2.2 billion, Universal Insurance sold 36.1 million equities valued at N51.5 million, and Zenith Bank exchanged 35.4 million shares worth N2.6 billion.
By Adedapo Adesanya
The oil market was up by nearly 2 per cent on Tuesday after the United States shot down an Iranian drone approaching an aircraft carrier and armed boats in the Strait of Hormuz, stoking concerns talks aimed at de-escalating US-Iran tensions could be disrupted.
This action caused the Brent futures to rise by $1.03 or 1.6 per cent to $67.33 per barrel, as the US West Texas Intermediate (WTI) futures jumped by $1.07 or 1.7 per cent to $63.21 a barrel.
Both crude benchmarks dropped more than 4 per cent on Monday after President Donald Trump said Iran was seriously talking with America.
However, the US military shot down an Iranian drone that “aggressively” approached the Abraham Lincoln aircraft carrier in the Arabian Sea on Tuesday.
In the Strait of Hormuz between the Persian Gulf and the Gulf of Oman, Iranian gunboats approached a US-flagged oil tanker in what US and British maritime security sources describe as a failed attempt to interfere with the vessel’s transit.
Members of the Organisation of the Petroleum Exporting Countries (OPEC) including Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq export most of their crude via the strait, mainly to Asia. The Strait of Hormuz, through which roughly a fifth of the world’s oil supply passes, remains Iran’s most obvious pressure point.
Despite the latest development, the UAE urged Iran and the US on Tuesday to use the resumption of nuclear talks this week to resolve a standoff that has led to mutual threats of air strikes. Iran, meanwhile, is demanding that talks be held in Oman not Turkey.
In Ukraine, President Volodymyr Zelenskiy accused Russia on Tuesday of exploiting a US-backed energy truce to stockpile munitions, and using them to attack Ukraine a day before peace talks. This boosted worries that Russia’s oil would remain sanctioned for longer.
On Monday, President Trump announced a trade deal with India, one of the world’s biggest economies and oil importers, on Monday to cut tariffs to 18 per cent from 50 per cent in exchange for the country halting Russian oil purchases and lowering trade barriers.
The American Petroleum Institute (API) estimated that crude oil inventories in the US decreased by 11.1 million barrels in the week ending January 30. Crude oil inventories decreased by 247,000 barrels in the week prior.
Official data from the US Energy Information Administration (EIA) will be published later on Wednesday.
By Adedapo Adesanya
The Africa Finance Corporation (AFC), the continent’s leading infrastructure solutions provider, has reiterated its commitment to playing a pivotal role to support transformative reforms in Nigeria’s power sector.
This is as it act as co-Financial Adviser to the Nigerian government on the successful issuance of the recent N501 billion inaugural tranche under the Presidential Power Sector Financial Reforms Programme (PPSFRP), as part of the N4 trillion Power Sector Bond Programme, aimed at resolving over a decade of legacy debt obligations in Nigeria’s electricity supply industry and restoring financial stability across the sector.
AFC provided comprehensive financial advisory services to the federal government, including the design of the Programme’s negotiation strategy framework, support in negotiating and executing Settlement Agreements with Power Generation Companies (GenCos), and structuring the bond issuance. Working in partnership with CardinalStone Partners as co-Financial Advisers, AFC deployed its deep sector expertise and strong local market knowledge to deliver the landmark transaction.
The programme was overseen by the Presidential Power Sector Debt Reduction Committee (PPSDRC), with technical leadership from the Office of the Special Adviser to the President on Energy, and implemented through NBET Finance Company Plc, a special purpose vehicle of Nigerian Bulk Electricity Trading Plc (NBET). Proceeds from the issuance will be used to settle verified, overdue receivables owed to GenCos for electricity supplied between February 2015 and March 2025, injecting liquidity into the power sector and extinguishing long-standing claims.
Commenting on AFC’s involvement, Mr Banji Fehintola, Executive Board Member and Head, Financial Services at Africa Finance Corporation, said: “The successful issuance of the inaugural tranche under the Power Sector Bond Programme underscores AFC’s commitment to supporting transformative reforms in Nigeria’s power sector. By resolving long-standing liquidity challenges and restoring confidence among investors and operators, this transaction lays the foundation for sustainable growth and improved electricity supply across the country.”
When fully implemented, the programme is expected to impact approximately 5,398MW of electricity generation capacity by Nigerian GenCos and finalise settlement for 290,644.84GWh of electricity billed since 2015. It will also strengthen companies serving about 12 million active registered customers, creating a solid platform for new investments in capacity enhancement and expansion.
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