Capital Markets

Nigerian credit agency cleared to operate in Kenya

 An Equity Bank branch in Nairobi. The bank was assigned an AA-rating, a stable outlook, by Global Credit Rating agency in 2012. FILE
An Equity Bank branch in Nairobi. The bank was assigned an AA-rating, a stable outlook, by Global Credit Rating agency in 2012. FILE 

Kenya’s capital markets regulator has given Nigerian credit ratings agency Agusto & Co a licence to set up operations in Nairobi, potentially easing the process of assessing creditworthiness of companies seeking to issue bonds in Kenya.

The Nigerian firm becomes the second ratings agency to be granted a licence after the first issue to Global Credit Rating (GCR) of South Africa.

The Capital Markets Authority (CMA) said that licensing the firm opens the door to Kenya’s capital markets wider, boosting the plan to become a regional financial services hub.

“We would like to see Nairobi being quoted (as a financial services hub) more than Cairo, Lagos and other markets,” said CMA chairman Kung’u Gatabaki in an interview.

Lagos-based Agusto & Co is expected to act as a gateway for firms in the region to access Kenyan capital markets.

Large investors such as insurance and pension funds rely on credit rating agencies to give a professional opinion on whether bonds, commercial papers and other securities are worth the paper they are written on before they make an investment decisions.

About eight Kenyan companies have bonds worth more than Sh60 billion listed at the Nairobi Securities Exchange.

Deal makers speculated that the entry by a Lagos-based firm may be signs of increasing investor interest from West Africa in Kenyan securities.

“It could mean there are investors looking at Kenyan securities such as bonds and they need a rating,” said Kestrel Capital chief executive Andre DeSimone.

He added that institutional investors such as pension funds prefer or by law are required to use the credit rating agencies approved by home-based regulators.

Agusto & Co is licensed by the Securities and Exchange Commission Nigeria, the equivalent of Kenya’s CMA. The company’s website says the firm became the first rating agency to be registered in Nigeria in 1992.

Even in Kenya, pension and retirement funds are required by law to invest in bonds, commercial paper that is rated by a credit ratings agency.

“Commercial Paper, Corporate Bonds, Mort­gage Bonds and loan stocks approved by the CMA non listed bonds and other instruments issued by private compa­nies, provided that the bond or instrument has been given investment grade rating by a credit rating agency registered by the CMA, and collective investment schemes incorporated in Kenya and approved by the CMA reflecting this category,” says the Retirement Benefits Authority (RBA) Act.

Private placement

Centum’s private placement bond that managed to raise Sh3.2 billion from the institutional investors in September 2012, the biggest private placement bond in Kenya’s history, was rated by GCR.

GCR also rated KenolKobil’s Sh1.7 billion commercial paper, issued in 2012. Kenyan firms are looking beyond the region to raise additional money and will require the services of a rating agency.

In November 2012 Equity Bank was assigned an AA- rating or a stable outlook, again GCR was the rating agency.

Equity Bank said at the time that its plans to raise long-term debt from international market, which is able to offer lower interest rates albeit with a foreign currency exchange risk, and therefore the need for a credit rating from a recognised agency. KCB has also said that it plans to get a rating.
For the rating agency they could see an opportunity to sell services in Kenya.

“Our ratings encompass financial institutions, corporates, funds, asset managers, health management organisations, as well as corporate and municipal debt issues,” says Agusto & Co’s website.