PanAfrican housing financier Shelter Afrique is at high risk of defaulting on its debt, ratings agency Moody’s has warned.
Moody’s has downgraded the issuer rating of Shelter Afrique to Caa1 from B3 and assigned a negative outlook after a review of the lender’s books initiated on February 17.
“The downgrade to Caa1 reflects Moody’s view that Shelter Afrique’s current liquidity crisis will result in an event of default under Moody’s definition, coupled with its expectation that losses for private creditors will be minimal,” the ratings firm said in a statement. The negative outlook reflects the risk that losses for private creditors may prove to be higher than expected.
The looming default could, however, be avoided if Shelter Afrique gets additional capital to stabilise its finances in the short and medium term, the ratings firm said.
Moody’s attributed the downgrade of Shelter Afrique to delays in capital injections.
“The capital subscriptions received so far are broadly in line with payment schedules indicated by shareholders. However, future contributions are not expected to arrive in time to prevent a default event,” the rating firm said.
It added that Shelter Afrique’s lines of liquidity remain closed, compounding its financial position.
“As a result, the company has abandoned its expectations for new cash inflows from borrowing and sharply curtailed its new lending activities, with an event of default under Moody’s definition increasingly likely,” it said.
Shelter Afrique acting managing director Femi Adewole, however, termed the assessment inaccurate.
“While we respect the independence of Moody’s as a rating agency, we do not agree with the basis of the review. We believe it is premature and in some instances includes assumptions that are simply inaccurate,” Mr. Adewole said in a statement.
Mr. Adewole maintained that the housing financier’s turnaround “is on track” and assured its creditors and other partners that “there is nothing to worry about.”
“The fact is that …Shelter Afrique has received written commitments from 11 sovereign shareholders to inject additional capital of up to $60 million (Sh6.19 billion) this year. We expect to receive additional commitments from four shareholders before June,” he said.
Shelter Afrique has so far received $14 million (Sh1.44 billion) in new capital, “which is ahead of our projections so there is no serious cause for concern.”
“Given that receiving payment from government treasuries will often involve lengthy processes, most of the cash commitments will not be received before September,” he said.
Vipya Harawa, the legal, risk and compliance director, said in a notice ahead of the January extraordinary meeting held in Nairobi that Shelter Afrique needs $127.96 million (Sh13.2 billion) to meet this year’s committed obligations and maintain a 15 per cent liquidity ratio.
Shelter Afrique reported a net loss of $12.68 million (Sh1.26 billion) for the year ended December 2016.
Credit: Business Daily