CMA spares Shelter Afrique cash freeze on downgrade

Shelter Afrique headquarters in Upper Hill, Nairobi. file photo | nmg 

By HERBLING DAVID

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Summary

• The CMA will not invoke an order for sequestration for interest payments and redemption of the mid-term note despite last month downgrade by Moody’s.
• The CMA said its upbeat assessment is based on the fact that Shelter Afrique is yet to default on any payments.
• Shelter Afrique listed a Sh5 billion five-year medium-term unsecured notes on the Nairobi Securities Exchange in 2013 and the bond matures on September 28, 2018.

The Capital Markets Authority (CMA) has ruled out issuing an order for Shelter Afrique to put aside cash to repay Sh5 billion bondholders even after its rating slipped into the junk territory.

The markets regulator said despite last month downgrade by Moody’s, the CMA would not invoke an order for sequestration for interest payments and redemption of the mid-term note.

The CMA said its upbeat assessment is based on the fact that Shelter Afrique is yet to default on any payments, having last paid out Sh835 million in interest payments to bondholders on March 27.

“It is noteworthy that since Shelter Afrique issued the bond in 2013, it has had seven interest payments and has not defaulted on a single one,” the regulator told the Business Daily in a response to our queries.

“No circumstances have arisen that would call for such an intervention.”

Sequestration is a process where the regulator or courts order a debtor to set aside cash to meet claims.

Kenyan taxpayers control 10.63 per cent of Shelter Afrique, which is owned by 44 African countries together with the African Development Bank and African Reinsurance.

Rating agency Moody’s on April 28 downgraded the issuer rating to Caa1 from B3 and assigned the financier a negative outlook, sparking fears of a possible default in payments. The Caa1 rating is junk status defined by Moody’s as ‘poor quality and very high credit risk.’

“The downgrade to Caa1 reflects Moody’s view that Shelter Afrique’s current liquidity crisis will result in an event of default under Moody’s definition, coupled with its expectation that losses for private creditors will be minimal,” Moody’s said in an update.

“The negative outlook reflects the risk that losses for private creditors may prove to be higher than expected.”

Shelter Afrique listed a Sh5 billion five-year medium-term unsecured notes on the Nairobi Securities Exchange in 2013 and the bond matures on September 28, 2018.

One tranche of Sh4.23 billion has a coupon rate of 12.75 per cent while the other Sh760 million note is priced at 11 per cent.

Shelter Afrique needs $127.96 million (Sh13 billion) to meet this year’s committed obligations and maintain a 15 per cent liquidity ratio, it said in a notice ahead of an extraordinary shareholders meeting held in January.

The cash-strapped mortgage financer said it has so far received written commitments from 11 shareholders to inject additional capital of up to $60 million this year, less than half the requirement.