NEW YORK,–(COMMERCIAL THREAD) – Africa Finance Corporation, the leading provider of infrastructure solutions in Africa, received an increase in its credit rating outlook from Moody’s Investors Service, which assigned a “stable” outlook.
The decision ratifies the second investment grade ranking among African institutions for AFC, with Moody’s upholding the company’s long-term and senior unsecured issuer ratings to A3 and the short-term issuer rating to P-2.
“The stable outlook underscores the resilience of AFC’s credit profile in the face of a significant shock from the Covid-19 pandemic,” Moody’s analysts concluded in a statement. “In light of developments over the past year, Moody’s expects AFC to maintain its intrinsic financial strength, with capital adequacy and strong asset performance, liquidity and funding. ”
AFC’s A3 rating is supported by its intrinsic financial strength, which includes a capital position as measured by its Basel II ratio which rose to 34.1% in 2020 from 32.9% in 2019. AFC’s financing and liquidity exceed the average for comparable A-rated institutions, with a liquidity-to-total assets ratio of 54% at end-2020, compared to 50% for its peers. Despite significantly weaker market conditions, the availability of AFC’s liquid resources increased to 125% of expected cash outflows in 2020, up from 121% in 2019, well above the median of 83% for A rated peers, bolstered by demonstrated access to market funding.
Moody’s decision is critical as AFC leverages its leading credit ratings to achieve the lowest borrowing costs of any institution on the continent and funnels that capital into vital energy infrastructure, transport, telecommunications and natural resources that stimulate local manufacturing and job creation. To date, the Company has invested over US $ 8.7 billion in projects in 35 African countries. Much more is needed: The continent’s worst recession in decades has increased the already substantial infrastructure financing needs, estimated at US $ 130 billion to US $ 170 billion per year.
“The main factor in shifting the outlook from negative to stable is AFC’s demonstrated ability to avoid erosion of its intrinsic financial strength despite the pandemic,” Moody’s analysts wrote in their report. In fact, “the Company’s capital adequacy has increased due to a slight decrease in its leverage ratio.”
Moody’s praised AFC for being “proactive in managing the risks inherent in the projects it finances” – a process which, according to the rating company, will continue until 2021 to deal with the consequences of the pandemic. The report also noted increased asset diversification: AFC’s exposure to the oil and gas sector, for example, has fallen to 18% of the overall portfolio, from 20% in 2019 and nearly 50% five years ago. years.
Investors showed their support for AFC’s business model in April by ordering 3.5 times more than the $ 750 million raised in seven-year Eurobonds at a record yield. The funding is in addition to commitments from an inaugural green bond last year as well as syndicated loans and concessional lines of credit resulting from AFC’s “strong partnerships” with commercial banks and development finance institutions, Moody’s reported. AFC was recently designated as an eligible organization to provide official development assistance through the OECD Development Assistance Committee.
An increase of $ 60 million from new shareholders combined with the issuance of $ 200 million in stock warrants to the Central Bank of Nigeria and a self-contribution of $ 115 million to reserves from profits of AFC in 2019 exemplify strong and continued stakeholder support, Moody’s said.
“Amid the unprecedented challenges for the development of our continent from Covid-19 and its consequences, it is gratifying to receive such strong support for our strategy and to maintain the confidence of a key lever in our access to global capital markets, ”Samaila Zubairu, AFC President and CEO, responded. “My thanks to the AFC team for their hard work and focus on updating AFC’s mandate to reduce Africa’s infrastructure deficit. We will continue to seek ways to accelerate development impact by creating jobs for young Africans seeking opportunities for better livelihoods. ”
For Moody’s full statement, please click here. Moody’s changes AFC outlook from negative to stable; confirms A3 notes
AFC was established in 2007 to be the catalyst for private sector led infrastructure investments across Africa. It is the second highest rated multilateral financial institution in Africa. AFC’s approach combines specialized industrial expertise with a focus on financial and technical advice, project structuring, project development and venture capital to meet Africa’s infrastructure development needs and stimulate a sustainable economic growth.
AFC invests in high quality infrastructure assets that provide essential services in the basic infrastructure sectors of energy, natural resources, heavy industry, transport and telecommunications. To date, the Company has invested over US $ 8.7 billion in projects in 35 African countries.
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