Johannesburg, 30 September 2016 – Global Credit Ratings has affirmed the national scale ratings assigned to The Company for Habitat and Housing in Africa of AA(KE) and A1+(KE) in the long term and short term respectively; with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale foreign currency (“FC”) rating assigned to The Company for Habitat and Housing in Africa of BB; with the outlook accorded as Stable. The ratings are valid until September 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to The Company for Habitat and Housing in Africa (“Shelter Afrique”, “the company”) based on the following key criteria:
The ratings of Shelter Afrique reflect its favourable strategic position in sub-Saharan Africa (given its mandate to support the development and efficient delivery of affordable housing and commercial real estate) and strong equity participation, comprising two institutional members and 44 member countries. The current 16.9% equity stake of the African Development Bank (“AfDB”), a highly rated multilateral development bank, is an important support mechanism to the company’s ratings. AfDB is in the process of increasing its shareholding to 22.7%. AfDB also supports Shelter Afrique through long-term credit lines and technical assistance, including capacity building and risk management.
Shelter Afrique is adequately capitalised for current risk levels in GCR’s opinion, reporting a risk weighted capital adequacy ratio of 27.9% at FYE15 (FYE14: 27.1%), calculated in line with Basel II standards (internal minimum 25%). Financial flexibility is further boosted by the company’s access to callable capital (USD500m), which acts as a guarantee of Shelter Afrique’s borrowings, albeit, cognisance is taken of the potential delays in collecting capital from member countries.
Although the company’s gross non-performing loan (“NPL”) ratio improved to 9.3% at FYE15, from 11.9% at FYE14, asset quality remains a challenge, due to legacy loans and difficult economic and political conditions experienced in some member countries where it has extended credit. While all exposures are secured, cumbersome judicial processes in member countries has meant that realising security on NPLs can take several years. Provisions covered 40.7% of impaired loans at FYE15, up from 33.2% at FYE14. Unreserved impaired loans (net NPLs) amounted to 14.5% (FYE14: 16.9%) of capital at FYE15. GCR notes the steps being taken by management to improve asset quality, including the establishment of a specialised loan work-out unit and strengthening governance and risk management structures, which should facilitate the underwriting of better quality assets going forward.
Shelter Afrique’s net income was USD3.1m in F15, compared to USD0.5m in F14, supported by robust loan growth of 29.7% and lower impairment charges (partly due to recoveries on loan loss provisions of USD0.7m).
Shelter Afrique’s sizeable liquid asset portfolio, in addition to a long dated funding profile, serves to mitigate liquidity risk, as evident from the cumulative liquidity buffers across all maturity buckets.
Shelter Afrique’s charter and well-diversified shareholding ameliorates sovereign interference risk. For all major international currencies, asset/liability mismatches are small and appear well managed. The majority of cash and liquid assets are US Dollar denominated and placed with strongly rated counterparties. Due to the diversity of the funding base, the international rating has not been constrained by the country ceilings of member countries.
A positive earnings trend, strong asset quality metrics, diversification of the loan portfolio, and a further strengthening of the equity base and shareholding profile, could lead to upward ratings migration. Conversely, pressure on the ratings could arise from asset quality deterioration (exacerbated by deteriorating economic environments across member countries) or unexpected deterioration in capitalisation, liquidity and leverage metrics.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE FC RATING HISTORY|
|Initial rating (July 2005)||Initial rating (July 2005)|
|Long term: AA(KE); Short term: A1+(KE)||Long term: BBB-|
|Outlook: Stable||Outlook: Stable|
|Last rating (September 2015)||Last rating (September 2015)|
|Long term: AA(KE); Short term: A1+(KE)||Long term: BB|
|Outlook: Stable||Outlook: Stable|
|Primary Analyst||Committee Chairperson|
|Kurt Boere||Omega Collocott|
|Credit Analyst||Sector Head: Financial Institution Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions (March 2016)
Global Criteria for Rating Multilateral Development Banks (September 2016)
Kenya Bank Statistical Bulletin (December 2015)
Kenya Operating Environment Overview (May 2016)
Shelter Afrique rating reports (2005-15)
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The Company for Habitat and Housing in Africa 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 rating/s has been disclosed to The Company for Habitat and Housing in Africa with no contestation of the rating.
- Audited financial results of the group as at 31 December 2015 (plus four years of comparative figures)
- Unaudited interim results of the group as at 30 June 2016
- Budgeted financial statements for 2016
- Latest internal and/or external audit report to management
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
- Industry comparative and regulatory framework
The ratings above were solicited by, or on behalf of, The Company for Habitat and Housing in Africa, and therefore, GCR has been compensated for the provision of the ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Asset Quality||Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Audit Report||A written opinion of an auditor (attesting to the financial statements’ fairness and compliance with generally accepted accounting principles).|
|Basel||Basel Committee on Banking Supervision housed at the Bank for International Settlements.|
|Basel I||Basel Committee regulations, which set out the minimum capital requirements of financial institutions with the goal of minimising credit risk.|
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|Callable||A provision that allows an Issuer to repurchase a security before its maturity.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Corporate Governance||Refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due.|
|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 investments, 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.|
|Equity||Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|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.|
|Financial Statements||Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.|
|Guarantee||An undertaking in writing by one person (the guarantor) given to another, usually a bank (the creditor) to be answerable for the debt of a third person (the debtor) to the creditor, upon default of the debtor.|
|Impairment||Reduction in the value of an asset because the asset is no longer expected to generate the same benefits, as determined by the company through periodic assessments.|
|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.|
|International Scale FC Rating||International foreign currency (International FC) ratings measure the ability of an organisation to service foreign currency obligations, taking into account transfer and convertibility risk|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Liquid Assets||Assets, generally of a short term, that can be converted into cash.|
|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.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long-Term||Not current; ordinarily more than one year.|
|Long-Term Rating||Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|National Scale Rating||Provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Performing Loan||A loan is said to be performing if the borrower is paying the interest on it on a timely basis.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Securities||Various instruments used in the capital market to raise funds.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|Short-Term||Current; ordinarily less than one year.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
For a detailed glossary of terms utilised in this announcement please click here
GCR affirms The Company for Habitat and Housing in Africa’s rating of AA(KE); Outlook Stable.