Lagos, 16 July 2021 – GCR Ratings (“GCR”) has affirmed the national scale long term rating of AAA(NG) accorded to Infrastructure Credit Guarantee Company Limited, with a Stable Outlook.
|Rated Entity||Rating class||Rating scale||Rating||Outlook|
|Infrastructure Credit Guarantee company Limited||Long Term issuer||National||AAA(NG)||Stable|
The rating is underpinned by the uniqueness of Infrastructure Credit Guarantee Company Limited’s (“InfraCredit” or “the company”) operations as a credit guarantee provider, and the company’s strong capitalisation, liquidity, and asset quality position, albeit counterbalanced by its self-regulated status.
Operational uniqueness offers some monopolistic privileges to InfraCredit, with no direct competitor in the country presently. However, the company reflects low level of diversification by product and customer base, and its operations are limited to Nigeria. Earnings growth was mainly fuelled by FX gains in FY20 as the COVID-19 pandemic impacted on finalisation of potential mandates. We expect the gradual normalisation in the economy to result in a material growth in earnings in FY21 and FY22 respectively post adjustment for FX gains. Management & Governance is a neutral ratings factor.
Overall capitalisation is a significant rating positive. A moderate negative adjustment was made due to the low core equity component of the qualifying tier-1 capital, with the GCR calculated core capital ratio standing above 20% at FY20 and year to date but expected to moderate to around 16-17% in FY21 and FY22. Revenue is considered stable, given the recurring nature and particularly the annuity-like nature of guarantee and monitoring fees, which are usually amortised and earned over the life of the guaranteed transaction, although counterbalanced by increased exposures to market sensitive income, which constituted 42.7% of total operating income in FY20 (FY19: 0.5%), thus constituting a moderate rating negative.
Risk is viewed to be somewhat contained through adoption of a stringent underwriting criteria. So far, there has been no payment default under any of the guaranteed transactions, hence no recourse to InfraCredit for repayment under any of its guaranteed transactions to date. However, note is taken of the concentrated nature of the deal portfolio (comprising four deals as at May 2021), which somewhat elevates the company’s risk profile. The USD denominated cash and liquid asset portfolio (bank balance, money market placements, Eurobonds) and due to related parties, and other financial liabilities also expose the company to foreign exchange risk, which appears to be well contained through hedging. Asset quality metrics are expected to remain sound in the foreseeable future.
Funding and liquidity is assessed at high level, with the funding base comprising mainly equity, preference shares, subordinated long term borrowings and contingent capital, all considered highly stable. Concentration risk inherent in the limited borrowing counterparties is offset by funding stability, with the unexpired tenor of the borrowings ranging from seven to nine years. The GCR calculated long-term funding ratio of 80% and 111% at FY19 and FY20 respectively is considered strong and expected to remain robust over the next 12-18 months.
The stable outlook reflects GCR’s expectation that InfraCredit would ensure strong capitalisation characterised by significant core equity components, and maintain strong asset quality despite the expected rapid guaranteed portfolio growth and the strains in the operating environment.
A rating downgrade could follow deterioration in asset quality, a downgrade in the ratings of any of the contingent capital providers, sustained pressure on earnings, as well a significant rise in leverage such that weakens the GCR total leverage ratio to below satisfactory level (less than 20%).
|Primary analyst||Julius Adekeye||Head of Ratings, Nigeria|
|Lagos, NG||Adekeye@GCRratings.com||+2341 904 9462|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
Related criteria and research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Financial Institutions, May 2019|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, February 2021|
|GCR Financial Institutions Sector Risk Score, February 2021|
Infrastructure Credit Guarantee Company Limited
|Rating class||Review||Rating scale||Rating||Outlook||Date|
|Long Term issuer||Initial||National||AAA(NG)||Stable||July 2017|
|Long Term issuer||Last||National||AAA(NG)||Stable||July 2020|
Risk score summary
|Rating Components & Factors||Risk Scores|
|Country risk score||3.75|
|Sector risk score||2.00|
|Management and governance||0.00|
|Capital and Leverage||3.00|
|Funding and Liquidity||1.50|
|Balance Sheet||Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Diversification||Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks|
|Income||Money received, especially on a regular basis, for work or through investments.|
|Interest||Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Margin||A term whose meaning depends on the context. In the widest sense, it means the difference between two values.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Short Term||Current; ordinarily less than one year.|
SALIENT POINTS OF ACCORDED RATING
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit ratings have been disclosed to Infrastructure Credit Guarantee company Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.
Infrastructure Credit Guarantee company Limited participated in the rating process via video conference management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The information received from Infrastructure Credit Guarantee company Limited and other reliable third parties to accord the credit ratings included:
- The audited financial results to 31 December 2020
- Three years of comparative audited numbers
- Management account as at 31 March 2021
- Other related documents.