Capital Markets

Fitch, Moodys to seek CMA nod for local ratings

CMA

Capital Markets Authority (CMA) CEO Wyckliffe Shamiah. FILE PHOTO | NMG

Kenya is seeking to stop unsolicited ratings by global firms by requiring them to seek regulatory approvals before ranking the sovereign or companies’ debt portfolios.

The capital markets regulator has issued new guidelines that will require foreign rating agencies to apply for a certificate of recognition before issuing rankings in Kenya.

The Capital Markets Authority (CMA) explained in an impact assessment that unsolicited ratings fail to capture the government's efforts to address downside risks and open doors for unfavourable ratings.

The Kenyan government had contracts with two rating agencies namely Fitch Ratings and S&P Global. However, these contracts ended and therefore the rating agencies are currently issuing unsolicited ratings.

“The risk associated with unsolicited ratings include failure to consult with the government representatives in the review process results in an inadequate understanding of the sovereign risk exposure and the government strategy in addressing the downside risk factor,” CMA said.

“Lack of contract with the government or regulation provides an open door for the rating agencies to use unfavourable ratings.”

CMA said they have also reviewed the rules to make ratings cheaper and affordable for local companies by encouraging competition and imposing minimal charges for entry.

The rating agencies, whether domestic or foreign will pay an application fee of Sh10,000, an approval fee of Sh200,000, and an annual subscription fee of Sh200,000.

Currently, there are five Credit Rating Agencies (CRAs) operating in Kenya namely, Agusto & Company Limited (Headquartered in Nigeria), Metropol Corporation Limited, Global Credit Rating Company (headquartered in Mauritius), Care Ratings Africa (headquartered in Mauritius), and A.M Best Rating Services Limited (based in the United Kingdom).

CMA said it has noted that in addition to the five foreign credit rating agencies licensed by the Authority, other several rating agents have been providing rating services, particularly for non-listed entities without the Authority’s approval, which is against the law.

Global credit ratings have come under scrutiny after slashing assessments and adjusting downgrades on developed countries on the effect of the coronavirus pandemic amid criticism they fuel further economic deterioration.

There has been particular criticism of the big three credit rating agencies S&P Global, Moody’s, and Fitch, and how they reacted to the Covid-19 pandemic

A study by CountryRisk.io found that 48 countries had their ratings cut by at least one agency. Half of those also experienced more than one downgrade, although richer countries saw hardly any despite a far bigger rise in debt levels.

This has prompted countries to impose controls over rating firms in their jurisdiction that risk locking out the global firms.

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