Contact Us
  +254 732 148 000 / +254 719 084 000
English / French
 
 
Whistleblowing Line
Home / Media / News Coverage
Print this page
News Coverage

08/11/2017
FITCH ASSIGNS AFRICAN GUARANTEE FUND 'AA-' IFS RATING

Fitch Ratings-London-08 November 2017: Fitch Ratings has assigned the African Guarantee Fund
for Small and Medium-sized Enterprises Ltd (AGF) an Insurer Financial Strength (IFS) rating of
'AA-' (Very Strong). The Outlook is Stable.


KEY RATING DRIVERS
The rating reflects AGF's financially strong owners, very strong capital position, proven business
model as provider of local currency guarantees for small and medium sized enterprises (SMEs) in
Africa and low investment risk. These strengths are partly offset by the company's small size.
AGF is backed by public institutions, but it is run on a commercial basis, allowing European
countries to support the financing of SMEs in Africa without directly committing their own funds.
It is owned by the development agencies of Denmark (AAA/Stable; 41.9% at end-2016), Spain
(BBB+/Positive; 22.9%) and France (AA/Stable; 16.1%) and by the African Development Bank
(AAA/Stable; 11.5%) and the Nordic Development Fund (7.7%).


The owners' commitment to AGF is indicated by their capital contributions to AGF to date and
their plans to provide additional paid-in capital and subordinated debt to support AGF's growth
strategy. However, there is no formal support, such as the subscription of callable capital or an
unconditional guarantee from the public shareholders to support AGF. Consequently, future
financial support from the five development agencies cannot be guaranteed. AGF's rating reflects
financially strong and committed sponsors but it is not aligned with that of the owners due to the
absence of explicit support.


AGF's very strong capitalisation with a gross par-to-capital ratio of around 1.3x at end-2016 is a
positive rating driver. Fitch takes into account reinsurance of guarantees (re-guarantees) provided
by the Swedish International Development Cooperation Agency (SIDA), United States Agency
for International Development (USAID) and the African Trade Insurance Agency (ATI), which
results in an exceptionally strong net par-to-capital ratio of 1.2x at end-2016. AGF plans to further
extend its capital base by USD420 million by end-2020 through issuing mezzanine/convertible
notes (USD336 million) and subordinated debt (USD84 million) to its current owners, other highly
rated development finance institutions (DFIs) and non-government organisations. Fitch expects
capitalisation to reduce as the company grows, but to remain commensurate with the rating.
As AGF's primary objective is to reduce the funding gap for African SMEs, profitability is not
the main performance metric. However, the company was profitable in 2015 and 2016 - just three
years after its incorporation in 2012 - and has therefore proven its business model. AGF has a longterm
return on capital target of 2.5%-5%, which Fitch views as an achievable target.


The company provides guarantees for non-US dollar denominated debt borrowed by speculativegrade
SMEs ("high frequency, high severity" guarantee portfolio as defined in Fitch's Insurance
Rating Methodology) and is exposed to currency risk. Fitch views this risk as manageable due to
AGF's strong capitalisation. However, it is possible that currency risk will increase as the company
grows, and Fitch will continue to closely monitor this exposure.


Fitch regards AGF's investment risk as low. At end-2016 AGF's investments consisted of sovereign
and corporate bonds (54%), fixed deposits (42%) and cash (3%).


RATING SENSITIVITIES
A weaker capital position as evidenced by a net par-to-capital ratio, including available capital
in the form of subordinated debt, exceeding 2.5x could lead to a downgrade. Any reduction in
the commitment by the owners to AGF, possibly as a result of a change in government policy
priorities, could also trigger a downgrade.
An upgrade of AGF's rating is unlikely due to its business profile.


Contact:
Primary Analyst
Ralf Ehrhardt
Director
+44 20 3530 1551
Fitch Ratings Limited
30 North Colonnade
London E14 5GN


Secondary Analyst
Harish Gohil
Managing Director
+44 20 3530 1257


Committee Chairperson
Dr Stephan Kalb
Senior Director
+49 69 768076 118


Date of relevant rating committee: 1 November 2017
Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email:
athos.larkou@fitchratings.com.


Additional information is available on www.fitchratings.com


Applicable Criteria
Insurance Rating Methodology (pub. 26 Apr 2017)
https://www.fitchratings.com/site/re/897260


ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS
AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN
ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB
SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE
AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE,
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS
SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/
REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD
PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212)
908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing
and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and
underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it
in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources
are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it
obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security
is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and
its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports,
engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification
sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and
reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies
on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the
information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the
work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings
and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by
their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or
conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the
report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a
security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating.
Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or
a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged
in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely
responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus
nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities.
Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort.
Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers,
insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable
currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a
particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency
equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in
connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United
Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may
be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no.
337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used
by persons who are retail clients within the meaning of the Corporations Act 2001

Video Gallery
AGF Training - Credit Bank Limited
October 2016
2017 EUROPEAN DEVELOPMENT DAYS 
8th June 2017
2016 AGF Annual Report
Designed & Developed by NETinfo Plc 
West Africa