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GCR Affirms Infrastructure Credit Guarantee Company Limited’s National Scale Long-term Issuer Rating of AAA(NG); Outlook Stable

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Infrastructure Credit Guarantee Company - Investors King

GCR Ratings (“GCR”) has affirmed the national scale long term rating of AAA(NG) accorded to Infrastructure Credit Guarantee Company Limited, with a Stable Outlook.

Rated Entity Rating class Rating scale Rating Outlook
Infrastructure Credit Guarantee company Limited Long Term issuer National AAA(NG) Stable

Rating rationale

The rating is underpinned by the uniqueness of Infrastructure Credit Guarantee Company Limited’s (“InfraCredit” or “the company”) operations as a credit guarantee provider, and the company’s strong capitalisation, liquidity, and asset quality position, albeit counterbalanced by its self-regulated status.

Operational uniqueness offers some monopolistic privileges to InfraCredit, with no direct competitor in the country presently. However, the company reflects low level of diversification by product and customer base, and its operations are limited to Nigeria. Earnings growth was mainly fuelled by FX gains in FY20 as the COVID-19 pandemic impacted on finalisation of potential mandates. We expect the gradual normalisation in the economy to result in a material growth in earnings in FY21 and FY22 respectively post adjustment for FX gains. Management & Governance is a neutral ratings factor.

Overall capitalisation is a significant rating positive. A moderate negative adjustment was made due to the low core equity component of the qualifying tier-1 capital, with the GCR calculated core capital ratio standing above 20% at FY20 and year to date but expected to moderate to around 16-17% in FY21 and FY22. Revenue is considered stable, given the recurring nature and particularly the annuity-like nature of guarantee and monitoring fees, which are usually amortised and earned over the life of the guaranteed transaction, although counterbalanced by increased exposures to market sensitive income, which constituted 42.7% of total operating income in FY20 (FY19: 0.5%), thus constituting a moderate rating negative.

Risk is viewed to be somewhat contained through adoption of a stringent underwriting criteria. So far, there has been no payment default under any of the guaranteed transactions, hence no recourse to InfraCredit for repayment under any of its guaranteed transactions to date. However, note is taken of the concentrated nature of the deal portfolio (comprising four deals as at May 2021), which somewhat elevates the company’s risk profile. The USD denominated cash and liquid asset portfolio (bank balance, money market placements, Eurobonds) and due to related parties, and other financial liabilities also expose the company to foreign exchange risk, which appears to be well contained through hedging. Asset quality metrics are expected to remain sound in the foreseeable future.

Funding and liquidity is assessed at high level, with the funding base comprising mainly equity, preference shares, subordinated long term borrowings and contingent capital, all considered highly stable. Concentration risk inherent in the limited borrowing counterparties is offset by funding stability, with the unexpired tenor of the borrowings ranging from seven to nine years. The GCR calculated long-term funding ratio of 80% and 111% at FY19 and FY20 respectively is considered strong and expected to remain robust over the next 12-18 months.

Outlook statement

The stable outlook reflects GCR’s expectation that InfraCredit would ensure strong capitalisation characterised by significant core equity components, and maintain strong asset quality despite the expected rapid guaranteed portfolio growth and the strains in the operating environment.

Rating triggers

A rating downgrade could follow deterioration in asset quality, a downgrade in the ratings of any of the contingent capital providers, sustained pressure on earnings, as well a significant rise in leverage such that weakens the GCR total leverage ratio to below satisfactory level (less than 20%).

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Finance

ARISE IIP and Africa Finance Corporation Launch US$ 100M Capital Pool for African Entrepreneurs

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ARISE IIP, the pan-African developer and operator of world-class industrial parks, and Africa Finance Corporation (AFC), the leading infrastructure solutions provider in Africa, today announced the signing of a Memorandum of Understanding to establish a dedicated US $100 million capital pool for African entrepreneurs who are establishing operations within any of the Arise IIP Special Economic Zones (SEZ) in Africa. 

At the heart of this partnership is a shared vision to uplift African entrepreneurs by providing them with much needed financing and advisory services to catalyse growth.

AFC will also actively seek financing from Export Credit Agencies (ECAs), local and regional financial institutions to mobilise funding to support these companies.

This concerted effort underscores ARISE IIP and AFC’s commitment to fostering industrialisation, job creation and economic prosperity in Africa.

Under this partnership, AFC’s comprehensive suite of financial services will extend beyond financing to include financial advisory support for corporate finance, equipment financing and market entry including assisting with joint ventures and technical partnerships for sponsors that may require it, to ensure they are well-equipped to seize opportunities and thrive within the SEZs.

By tapping into AFC’s extensive network and expertise, ARISE IIP aims to cultivate a vibrant ecosystem that nurtures entrepreneurship and drives sustainable economic development across the continent.

Gagan Gupta, CEO of ARISE IIP said about this partnership: “ARISE IIP is about empowerment. By empowering our customers, and ensuring they have the robust financial support needed to meet their operational objectives, this collaboration with Africa Finance Corporation, our long-lasting partner, takes us one step closer to realising our vision of an industrialised and prosperous Africa.

Samaila Zubairu, President & CEO of AFC said: This partnership marks a significant milestone in our commitment to offer strategic financial advisory and corporate finance services to firms focused on value capture and import substitution projects in Africa. By collaborating with our investee company Arise IIP and African entrepreneurs in our Special Economic Zones, we aim to foster an ecosystem that will increase trade, create jobs, and drive economic advancement on the continent.

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United Capital Plc Reports Stellar Growth with 65% Profit Increase, Announces Dividends

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United Capital - Investors King

United Capital Plc (NGX: UCAP) has unveiled its unaudited financial results for the period ending June 30, 2024.

The company reported a 38% increase in gross earnings year-on-year to N15.15 billion. Profit before tax soared by 63% to N9.06 billion while profit after tax surged by 65% to N7.74 billion.

Total assets rose by 27% in the first half to N1.19 trillion, and shareholders’ funds increased by 33% to N120.34 billion.

These robust results have prompted United Capital to declare an interim dividend of N0.90 per 50 kobo ordinary share, alongside a generous bonus share offering of “2 for 1.”

Peter Ashade, Group CEO, expressed satisfaction with the strong financial outcomes, highlighting the company’s commitment to creating wealth and delivering superior value to shareholders.

“This marks a historic moment with our first-ever interim dividend and bonus share announcement, demonstrating our dedication to stakeholder value,” Ashade stated.

The company remains confident about sustaining its growth trajectory throughout 2024, bolstered by nearly N1.3 trillion in funds under management.

United Capital continues to prioritize activities that enhance and preserve value for stakeholders, maintaining its competitive edge and profitability.

With a focus on trusts, mutual funds, and professionally managed investments, the group is strategically positioned to achieve its growth objectives, ensuring sustainable returns for all involved.

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Banking Sector

Nigeria Plans 50% Windfall Tax on Banks’ Currency Profits

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Central Bank of Nigeria (CBN)

Nigerian President Bola Tinubu has announced a one-time 50% tax on windfall profits that banks reaped from currency gains following last year’s naira devaluation.

This decision was part of the government’s strategy to navigate the ongoing cost-of-living crisis.

The naira, which has depreciated by about 70% against the dollar since foreign exchange rules were relaxed in June 2023, allowed banks holding dollar assets to significantly boost their income.

However, the Central Bank of Nigeria had advised lenders to retain these profits as a buffer against potential future losses.

The proposed tax will apply to the 2023 financial year, with non-compliance resulting in hefty fines.

The move has already impacted the NGX Banking Index, which fell by 1.3% as of midday trading in Lagos. Notable declines were seen in FBN Holdings Plc and Zenith Bank Plc, dropping 3.2% and 2.5% respectively.

This initiative mirrors similar actions in Europe, where countries like Italy and Hungary have imposed taxes on banks to address what they view as excessive profits during periods of high inflation and interest rates.

European banks have criticized these measures, warning of potential impacts on economic growth due to constrained lending capabilities.

President Tinubu’s administration believes this tax will help manage Nigeria’s fiscal challenges while addressing social needs.

Lawmakers are expected to support the measure, alongside a proposal to increase government spending by 6.2 trillion naira ($3.8 billion).

While banks have benefited from currency revaluations, many customers, particularly manufacturers with dollar-denominated loans, faced significant losses as they struggled with the weaker naira.

The new tax policy highlights the government’s broader efforts to stabilize the economy and attract foreign investment, aiming to ensure a more equitable distribution of financial gains.

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