GCR affirms Infrastructure Credit Guarantee Company Limited’s rating of AAA(NG); Outlook Stable.
Lagos Nigeria, 4 August 2020–Global Credit Ratings has today affirmed the long-term national scale rating assigned to Infrastructure Credit Guarantee Company Limited of AAA(NG); with the outlook accorded as Stable. The rating is valid until June 2021.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit ratings to Infrastructure Credit Guarantee Company Limited (“InfraCredit” or “the Company”) based on the following key criteria:
The rating of InfraCredit reflects its operational uniqueness as a guarantee provider, strong ownership and management profile, demonstrated financial flexibility, strong liquidity position, and profitability track record so far.
The Company’s capitalisation is considered satisfactory relative to its current operational scale. Strong internal capital generation lifted core capital by 5.8% to N18.7bn at FY19. InfraCredit’s leverage (core and contingent capital to issued guarantees) equated to 0.4x at FY19, well below the internally set cap of 7.5 times. The financial leverage of 24.6% at FY19 (FY18: 41.9%) is also considered moderate. Notwithstanding the strong capitalisation, management disclosed to GCR that discussion for additional equity injection from another Development Finance Institution of up to USD28m has reached an advanced stage, hoping to conclude the process before end-FY20.
Asset quality (in terms of issued guarantees) is sound, with nil non-performing exposure recorded from inception to date. In spite of the current macro-economic challenges, management is highly optimistic that asset quality indicators will remain at strong levels over the short to medium term, given the quality of Issuers in its guarantee portfolio, the Company’s stringent underwriting criteria, as well as portfolio monitoring and management process.
Liquidity risk is considered minimal, given the highly liquid nature of the balance sheet throughout the review period, with a sizeable 75.9% of the asset held in cash and risk-free tradable instruments at FY19.
Key performance metrics improved in FY19, reporting a pre-tax profit of N1.1bn (FY18: N171m), which measured well ahead of budget for the year. However, profitability remained largely driven by non-core revenue (investment income), which registered a 242% growth to N1.5bn. The core income (net guarantee fee income) recorded a less aggressive growth of 98.2% to N519m, bringing total operating income to N2.1bn (translating to a 152.1% year-on-year increase). While operating expenses escalated by 61.9% (in line with budget), the outpacing income growth saw the cost to income ratio end down to 47.2% (FY18: 73.5%). Furthermore, performance as at 1Q FY20 reflects a significant growth in total income, although this was mainly supported by foreign exchange translation gains on financial assets (a function of the Naira devaluation during the period).
A negative rating action could follow decline in performance or unfavourable development in the operating environment which impacts negatively on the Company’ performance, downgrades in the ratings of any of the contingent capital providers and/or a significant rise in leverage beyond current position.
NATIONAL SCALE RATINGS HISTORY
Initial rating (July 2017)
Long term: AAA(NG)
Last rating (July 2019)
Long term: AAA(NG)
Senior Credit Analyst
+234 1 904 9462
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for rating Banks and Other Financial Institutions, updated March 2017
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