Shelter Afrique headquarters in Upper Hill, Nairobi. PHOTO | FILE
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The stable rating is based on moderate capitalisation and shareholder support of the financial institution and low debt (or leverage) ratio.
Moody’s has rated housing company Shelter Afrique stable but warned of the risk it faces with nonperforming loans and concentration of assets in a few countries.
The stable rating is based on moderate capitalisation and shareholder support of the financial institution and low debt (or leverage) ratio.
Among the owners, Kenya is the third largest shareholder of the multilateral development bank with a 10.8 per cent stake, but it is also the single largest borrower with 21 per cent of total loans.
The top shareholder is the African Development Bank with 17.39 per cent stake while Nigeria is second with an 11.62 per cent equity.
“Moody’s Investors Service has today affirmed the long-term issuer rating of (Shelter Afrique),” said Moody’s in a statement.
The firm, also called Company for Habitat and Housing in Africa, operates in a region where it faces economic and political challenges. This keeps bad debt above 10 per cent of total loans.
“These strengths are offset by the poor quality of the bank’s loan portfolio and a high level of non-performing loans reflecting the bank’s challenging regional operating environment, both in economic and political terms,” said Moody’s.
It said the rating takes into account the likely deterioration of Shelter Afrique’s financial metrics — in particular an anticipated higher leverage (debt) ratio — as the bank grows its loan portfolio rapidly.
This means that the rating agency foresees the probability of the company raising more debt-linked funds — such as a bond or borrowing from other lenders, typically development financial institutions.
Shelter Afrique already has issued three-and-five-year bonds listed on the Nairobi Securities Exchange.
The total amount in value of the bonds the housing firm has taken is Sh5.5 billion, with the three-year bond worth Sh500 million while the five-year bonds take the balance. They are each priced at a coupon (interest) rate of 12.75 per cent annually.
Moody’s said Shelter Afrique’s capital adequacy is low. Total useable equity — defined as paid-up capital plus total reserves — increased from Sh9.2 billion ($87.4 million) in 2011 to Sh11 billion ($105.9 million) in 2014.
“But the increase in paid-in capital was outpaced by lending activity, and Shelter Afrique’s asset coverage ratio — defined as useable equity as a per cent of total loans and equity operations — declined from 82.4 per cent in 2011 to 46.3 per cent in 2014.
As such, Shelter Afrique’s capital position is weaker than most other MDBs,” said Moody’s.
Shelter Afrique’s favourable liquidity position provides a key support to its Ba1 rating, said the rating agency.
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