InfraCredit to Increase Capital by N120 billion – Note
Infrastructure Credit Guarantee Company Limited’s (InfraCredit) planned to increase its capital by about N120 billion in the next five years, Fitch Ratings said in its latest review note on the issuer.
According to the global rating agency, approximately 65% of the planned capital raise will be in the form of subordinated debt and 35% equity.
Of this amount, InfraCredit is expected to raise N40 billion in 2024 through a private placement to domestic institutional investors and a rights issue to existing shareholders, Fitch Ratings said.
Last week, Fitch affirmed InfraCredit Insurer Financial Strength (IFS) rating at ‘B+’ with a positive outlook, and its National IFS Rating at ‘AAA (nga)’ with a stable outlook.
It said the ratings reflect InfraCredit’s high investment concentration in Nigerian sovereign bonds, its ‘Strong’ capitalisation and leverage, and ‘Somewhat Weak’ business profile as a Nigerian-focused financial guarantor.
Fitch views the company’s guarantee activities as ‘High-Risk’ based on its concentrated exposure to the Nigerian economy.
“This assessment is in line with that of most other financial guarantors active in emerging markets. The credit quality of guaranteed transactions is non-investment grade based on an international scale, but has an average local rating of ‘BBB’/’BBB+’, reflecting exposure to higher-quality borrowers by Nigerian standards”.
Fitch said in the rating note that although InfraCredit’s guarantee activities are limited to Nigeria, its exposure is diversified across Nigerian regions and industry sectors.
Guaranteed transactions are primarily essential utilities in the power, logistics and transport sectors with an increasing focus on clean energy and renewables.
Fitch believes the general operating environment for insurers in Nigeria is improving, due to significant reforms to restore macroeconomic stability and enhance policy coherence and credibility.
The global ratings agency said it continues to view InfraCredit’s company profile as ‘Favourable’ compared with other insurance companies in Nigeria, based on its important role in supporting the realisation of essential infrastructure development projects as a financial guarantor.
The sharp devaluation of the Nigerian naira against the US dollar has also strongly benefited the company’s profitability in the last five years, the rating note stated.
InfraCredit’s assets are primarily US dollar-denominated with no foreign-exchange exposure in guarantee activities. The company’s return on equity averaged 22% in the last five years and, adjusted for FX volatility, averaged 5%, still strong for a development-focused guarantor.
Fitch expects improving economic scale to support the company’s earnings, with normalized return on equity in the high single-to-low double-digit range.
The rating agency said positive outlook reflects an improving general operating environment for insurers in Nigeria, adding that the issuer recorded a very high risky asset ratio of 388% in 2023 versus 406% in 2022.
InfraCredit’s high investment concentration in Nigerian sovereign bonds is a primary rating constraint, according to Fitch. Analysts said a reduction in Nigerian sovereign concentration and better diversification of the investment portfolio is expected in the near term.
In addition, an upgrade of Nigeria’s sovereign rating (B-/Positive) could also benefit the investment and liquidity credit factor assessment.
Fitch stated that an exceptionally strong end-2023 net par/capital ratio of 1x supports InfraCredit’s capitalisation, which is offset by a high financial leverage ratio (FLR) of 42% in 2023 driven by significant long-term subordinated debt in the company’s capital structure.
The rating note explained that InfraCredit’s management actively engages with prospective new investors including international development finance institutions and Nigerian private investors to raise capital to support its transaction pipeline. #InfraCredit to Increase Capital by N120 billion – Note
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