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.

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%).