Moody’s raises red flag over Shelter-Afrique loan portfolio

NationHela is taking to technology to provide speedy, convenient and cheaper remittances targeting the large Kenyan community in the diaspora. FILE 

By VICTOR JUMA

International ratings agency Moody’s has raised the red flag over pan-African mortgage financier Shelter-Afrique’s rising portfolio of risky loans ahead of its plans to raise Sh8 billion by issuing new corporate bonds.

Moody’s assigned a Ba1 credit rating to Shelter-Afrique, which means that debt issued by the firm are deemed to have speculative elements and are subject to substantial credit risk.

Moody’s said the rating reflects the firm’s increasing portfolio of risky loans, but also highlighted other positive signs such as its strengthening capitalisation, adequate liquidity and low leverage.

The rating means that the institution is likely to face demands for higher interest on the planned bonds as investors attach a premium above returns on government securities of similar tenure.

“Shelter-Afrique’s Ba1 rating balances strengthened capitalisation against poor asset quality,” reads part of the statement from Moody’s, which gave a stable outlook for the institution.

Shelter-Afrique is owned by 44 individual African States, African Development Bank (AfDB) and African Reinsurance Company.

Corporate bond

The mortgage firm plans to issue the first tranche of its new corporate bond programme to raise Sh3.5 billion with a provision to raise this up to Sh5 billion.

Details of the planned Sh8 billion fundraising were revealed by the Capital Markets Authority which, however, did not disclose when the balance of the bond would come to the market.

(READ: Shelter Afrique set to raise first tranche of Sh8bn bond)

Shelter Afrique currently has three medium term bonds listed on the Nairobi Securities Exchange with coupon rates of between 12.5 and 12.75 per cent. The securities will mature between July next year and December 2015.

The planned bonds come at a time when interest on the latest one-year government bond stands at 10.8 per cent, while long-term bonds are attracting coupon rates around 13 per cent, setting the benchmark for Shelter-Afrique’s offers.

The ratings agency noted that the biggest risk for Shelter Afrique comes from lack of callable capital —the portion of the capital not yet paid in by the company’s shareholders.

This type of capital is key in protecting an institution from its creditors —mainly banks and bond holders—in the unlikely event of a large-scale default by its borrowers.

“Although Shelter-Afrique is well capitalised, its current lack of callable capital means that it is more at risk than most other multilateral development banks,”  Moody’s said.