Markets & Finance

Microlender Real People shrugs off negative rating

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Real People CEO Daniel Ohonde. He says the firm expects to raise between Sh1.5 billion and Sh2 billion in the first tranche of its bond expected to be sold by end of year. PHOTO | DIANA NGILA |

South African microfinancier Real People’s future outlook has received a negative rating at a time its Kenyan subsidiary is raising Sh5 billion through a corporate bond.

Global Credit Rating agency has, for the second time, rated the Johannesburg-listed microlender “negative”, based on a low quality loan book and funding risks associated with lack of investor appetite.

The Kenyan subsidiary, however, believes the credit rating will not affect its effort to raise cash in the debut bond.

“The negative outlook does not amount to a change in outlook and will not, in our opinion, affect the uptake of the Real People Kenya bond. Real People Kenya is a separate legal and operating entity and is sufficiently well capitalised to operate on a standalone basis,” said the microfinancier’s chief executive Daniel Ohonde.

Real People is the largest credit-only microfinancier in Kenya, with a loan book of Sh2.5 billion. The company is targeting to raise Sh5 billion in three tranches with the first Sh2 billion set for issue this year.

READ: Microfinancier gets CMA nod to list Sh5bn bond

It intends to use the proceeds for onward lending to small and medium-sized enterprises.

Real People had indicated it was raising money in the Kenyan market so as to fund the business which require local currency rather than incur foreign currency losses.

The parent company partly owned by Norfund has been hit by slow uptake of loans in the South African market, resulting in the proportion of bad loans to its total loan book rising. Mr Ohonde said the gross non-performing loans (NPL) of the Kenyan unit stood at 19 per cent of its loan book.

Microfinanciers have higher default ratios due to the risks they take which they compensate with pricing their loans higher than banks.

The banking sector non-performing loans ratio is currently 5.4 per cent.

Real People said it has set aside adequate funds to absorb any loss that may arise from the local defaults.

“The NPL coverage ratio is more than 100 per cent as Real People Kenya has taken sufficient provisions to cover any potential write-offs. Net NPL ratio is negative 6.3 per cent ensuring no uncovered exposure in our loan book,” said Mr Ohonde.

Real People becomes the second financial institution under a South African group to shrug off negative rating of the parent company.

Last month, CfC Stanbic was assigned a “stable” outlook rating by Fitch Ratings despite downgrading of its parent company South African Standard Bank Group (SBG) to “negative” outlook.

South Africa sovereign rating has been downgraded to negative from stable following weak economic results and a series of strikes that have buffeted Africa’s second-largest economy.

Absa Bank, part of Barclays Africa, FirstRand Bank and Nedbank that have representative offices in Kenya, are the other South African banks that have seen their ratings downgraded to negative from stable.

Real People Kenya said demand for loans is still high in Kenya and it expects a 60 per cent expansion of its loan book, justifying its decision to issue the bond. The microlender has financed over 25,000 small businesses in the last six years.