Firms flee rating agencies to avoid books scrutiny
6 months ago, 24 June 00:05
When Bank of Africa Kenya withdrew its commitment to be scrutinized and graded by South African firm Global Credit rating, their debt position was questioned.
GCR had watched as the lender’s long term rating of A-(KE) and short term rating of A1-(Ke) move from positive in 2012, stable in 2015 to negative in August 2016.
The lender withdrew from the ratings agency. Coincidentally, five months later, the bank announced that it will close 12 of its 42 retail branches, subject to approval from the Central Bank of Kenya.
The bank reported a profit of Sh10.4 million in 2016 then improved to Sh67 million last year. BoA says the withdrawal was part of wider efforts to cut costs and remove duplicity since the Group Holding Bank was already being rated.
“Bank of Africa Kenya withdrew from the GCR rating being a strategic move as its majority shareholder BMCE Bank of Africa is rated by international agencies. This is a commercial decision meant to avoid duplication of functions,” BoA said in a statement.
Unfortunately, BoA is in good company. Many Kenyan companies are no longer comfortable to let rating agencies pore through their books. Firms have resorted to avoid adverse ratings from the South African ratings agency.
A review of recent trends shows a damning trend of Kenyan companies opting to leave the agency as they face poor scores and their fortunes ultimately nosediving shortly after.
Over the last five years, 14 companies have withdrawn their ratings at GCR, some of which had been cited by the agency for poor outlook.
In fact, half of them quit in 2016 with 6 firms deciding they no longer want to have the review. Chase Bank, Bank of Africa Kenya, Fusion Capital Ltd, Industrial and Commercial Development Corporation (ICDC) and Shelter Afrique have all ceased to participate.
Cannon Assurance, Car and General, East African Cables, Kaluworks, KenolKobil, Mumias Sugar Company, Nakumatt Holdings, Real Insurance and Saham Assurance Company Kenya Limited have also left.
Media reports on GCR grading scores have been the closest indicators of troubles that have been hitting local firms, acting as a reliable thermometer to their fortunes and debt positions.
In December, Real People Investment Holdings, which issued a Sh1.6 billion bond in 2015 was downgraded by GCR over ‘strong possibility that the group will breach its Capital Adequacy Ratio debt covenant in the near term, and/or fail to meet existing debt obligations’.
“This negative rating action primarily reflects a reduction in the servicer’s financial strength assessment following GCR’s recent downgrade of Real People’s issuer rating to CCC (ZA) from BB+ (ZA),” said GCR.
The South African credit only microfinance subsequently netted a loss of Sh232 million for the half year ending September 30 compared to a loss of Sh199 million reported in the same period during the last financial year.
Athi River Mining, which is currently facing mounting debt pressures has opted to stay put. It will be reviewed by the ratings agency which will assess its books next month.
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