Afreximbank terminate credit rating relationship with Fitch over dispute on rating cut

African Export-Import Bank Afreximbank, has officially terminated its credit rating relationship with Fitch Ratings due to what it said was a “firm belief” ‌that the agency’s rating approach no longer reflected an understanding of the bank’s mission and mandate.

This decision follows a review of the relationship, and its firm belief that the credit rating exercise no longer reflects a good understanding of the Bank’s Establishment Agreement, its mission and its mandate.

Afreximbank’s business profile remains robust, underpinned by strong shareholder relationships and the legal protections embedded in its Establishment Agreement, signed and ratified by its member states.

Afreximbank has been in a battle over whether it must take losses on loans to debt-defaulted countries, including Ghana and Zambia, which turns on whether it enjoys so-called “preferred creditor status”.

Fitch cut Afreximbank’s credit rating to one notch above junk status last year, citing high credit risks and weak risk-management policies, and put ‌it on a “negative outlook” – rating agency terminology for another downgrade warning.

It has also said that any weakening of preferred creditor status at institutions like Afreximbank “could lead to negative rating action.”
Fitch declined to comment on Afreximbank’s announcement.

Taking losses on loans to Ghana or Zambia could effectively end a debate over whether the Cairo-based lender ‍has the “preferred creditor status” enjoyed by the likes of the International Monetary Fund and World Bank, which protects loans from losses during restructurings.

That status is determined by convention and not clearly outlined by any entity, but is broadly based on whether an institution’s loans are concessional and whether its stakeholders are governments or private.

Afreximbank, whose shareholders include African sovereigns as well as private investors, is viewed ‍by many as an important source of capital for African countries, particularly when international bond markets are closed to them and as rich ‌countries ‌cut aid and concessional lending.

Afreximbank says its founding charter, which was signed by 53 African states, gives it preferred creditor status.

Zambia and Ghana have subsequently said they would seek to restructure the loans. Zambia in October said a third party had expressed interest in taking over its Afreximbank debt, which could allow it to restructure without addressing the lender’s preferred creditor status.

Afreximbank said in December it had resolved issues surrounding a $750 million loan to Ghana, without providing details. The lender “remains robust, underpinned by strong shareholder relationships and the legal protections,” ‍Afreximbank’s statement added.

Its bonds did not react to the announcement. U.S. investment bank JPMorgan cut its view on Afreximbank bonds this month, citing concerns that Fitch could cut its rating to junk following a report it would take a loss on Ghanaian loans.

Afreximbank is also rated by Moody’s, which downgraded it to Baa2, two notches above “junk”, in July – but has never ‍given it a ratings “uplift” for preferred creditor status. It is also rated by GCR, China Chengxin International Credit Rating and Japan Credit Rating Agency.