Credit rating agency out to provide meaningful ratings for Africa

A SPECIALIST rating agency plans to introduce sovereign ratings for 20 African countries within the next two to three years, to provide more meaningful ratings for Africa than those offered by the mainstream agencies.

Agencies such as Fitch, Moody’s and Standard and Poor’s tend to rate most African countries’ creditworthiness in the B category — or speculative grade — making it difficult for investors to differentiate between the countries on ability to repay debt.

A lower credit rating results in higher borrowing costs because the borrower is at higher risk of default. “On the African scale, all the sovereigns sit towards the bottom end of the scale … There is just too much compression at the bottom. How do you differentiate risk?” asks Marc Joffe, CEO of South African-based Global Credit Ratings.

The firm has a 20% stake in a Portuguese-based rating agency, which specialises in emerging markets and plans to rate up to 20 sovereigns in Africa within the next few years, Mr Joffe said earlier this week.

The yields on bonds issued by some African countries were at times better than those in developed markets, yet the African sovereign ratings were far weaker than those of the developed countries, he said.

“Portugal and Greece in crisis mode still had stronger ratings than most African countries … there is no consistency,” he said. “It is time for a new dynamic in the sovereign space.”

Sub-Saharan African countries have raised nearly $7bn so far this year on the sovereign debt market, more than the whole of 2013, according to the Financial Times, quoting figures from market research firm Dealogic.

A dedicated African ratings scale would determine which of the African countries are the most creditworthy, then benchmark the rest of the continent against them. This would provide more detail and nuance for potential investors comparing African nations. “It would show whether what the other three agencies in the sovereign space are doing in Africa is correct or not, or a perception issue,” said Mr Joffe.

Fitch changed the outlook on SA’s BBB sovereign credit rating from stable to negative in June — meaning the country is rated investment grade. Standard & Poor’s downgraded SA’s sovereign credit rating to BBB-with a stable outlook in June.

Picture: THINKSTOCK

Picture: THINKSTOCK

A SPECIALIST rating agency plans to introduce sovereign ratings for 20 African countries within the next two to three years, to provide more meaningful ratings for Africa than those offered by the mainstream agencies.

Agencies such as Fitch, Moody’s and Standard and Poor’s tend to rate most African countries’ creditworthiness in the B category — or speculative grade — making it difficult for investors to differentiate between the countries on ability to repay debt.

A lower credit rating results in higher borrowing costs because the borrower is at higher risk of default. “On the African scale, all the sovereigns sit towards the bottom end of the scale … There is just too much compression at the bottom. How do you differentiate risk?” asks Marc Joffe, CEO of South African-based Global Credit Ratings.

The firm has a 20% stake in a Portuguese-based rating agency, which specialises in emerging markets and plans to rate up to 20 sovereigns in Africa within the next few years, Mr Joffe said earlier this week.

The yields on bonds issued by some African countries were at times better than those in developed markets, yet the African sovereign ratings were far weaker than those of the developed countries, he said.

“Portugal and Greece in crisis mode still had stronger ratings than most African countries … there is no consistency,” he said. “It is time for a new dynamic in the sovereign space.”

Sub-Saharan African countries have raised nearly $7bn so far this year on the sovereign debt market, more than the whole of 2013, according to the Financial Times, quoting figures from market research firm Dealogic.

A dedicated African ratings scale would determine which of the African countries are the most creditworthy, then benchmark the rest of the continent against them. This would provide more detail and nuance for potential investors comparing African nations. “It would show whether what the other three agencies in the sovereign space are doing in Africa is correct or not, or a perception issue,” said Mr Joffe.

Fitch changed the outlook on SA’s BBB sovereign credit rating from stable to negative in June — meaning the country is rated investment grade. Standard & Poor’s downgraded SA’s sovereign credit rating to BBB-with a stable outlook in June.

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