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Rating Action:

Moody's assigns provisional (P)A3/(P)P-2 ratings to the Africa Finance Corporation's $3 billion MTN programme

15 Apr 2015

New York, April 15, 2015 -- Moody's Investors Service has today assigned a provisional senior unsecured (P)A3/(P)P-2 rating to the Africa Finance Corporation's (AFC) $3 billion medium-term note programme (MTN). Concurrently, Moody's also assigned a preliminary (P)A3 rating to the upcoming first programme drawdown of up to $750 million due in either 2020 or 2022.

RATINGS RATIONALE

These ratings mirror the A3 issuer rating of the Africa Finance Corporation, assigned on March 3, 2014.

Debt issued under the MTN programme will rank pari passu with all other senior unsecured debt of the AFC. The AFC intends to use the proceeds from issuances under the programme for general corporate purposes. Part of the proceeds from the first drawdown is expected to be used to repay a bridge loan of $300 million.

AFC's ratings are anchored by the institution's credit strengths, which include a sound capital adequacy position (Equity/Assets of 55% at end-2014), owing to good equity buffers and low debt levels, as well as a strong prudential framework that supports a high degree of liquidity. AFC has no non-performing loans (NPLs) and only one impaired asset on its balance sheet. Its treasury portfolio is liquid, with an average credit quality of A3 and no exposure to structured finance instruments or derivatives, and consists mainly of placements with large international financial institutions. AFC implements the International Financial Reporting Standards (IFRS) as well as stringent prudential ratios that aim over time to ensure sound capital adequacy and to reduce credit risk to its expanding portfolio.

The ratings are also balanced by the AFC's main credit challenges. The bank will continue to expand its balance sheet ($2.44 billion) and increase its leverage from a low level (78%) within its stringent prudential framework (whereby leverage is limited to 3x equity). This process will expose the credit portfolio to further macroeconomic and political risk in Sub-Saharan Africa and will lead to a weakening of the bank's currently high capital adequacy metrics. Nonetheless, we expect AFC's Basel II ratio to remain above 30%, as per the bank's own prudential limits, whereby a breach of 40% triggers remedial action. We also expect its asset coverage ratio (59%) to decline to around 45% by 2017 -- still comfortable levels. Moving forward, it will also be important to observe the evolution of the shareholders' and borrowers' commitment to the organization and the bank's ability to increase its number of shareholders in-line with its pan-African mandate.

WHAT COULD CHANGE THE RATING UP/DOWN

AFC expands its balance sheet in the coming years, a continued rise in profitability that does not lead to a deterioration in asset quality could exert upward pressure on the rating. Downward pressure on the rating could develop if the bank experiences a substantial shock to its capital adequacy, liquidity or member support. Scenarios could include (1) an excessively rapid expansion in its loan book (or leverage) that results in a sustained spike in NPLs (or increasingly onerous debt service payments); or (2) a sustained deterioration in country or regional economic conditions that materially restricts AFC's access to market funding and/or support from key members in case of need.

The principal methodology used in these ratings was Multilateral Development Banks and Other Supranational Entities published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The Local Market Analyst for this rating is Aurelien Mali +971 (4) 237-9537.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Elisa Parisi-Capone
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Yves Lemay
MD-Banking & Sovereign
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns provisional (P)A3/(P)P-2 ratings to the Africa Finance Corporation's $3 billion MTN programme
No Related Data.
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