Fitch Affirms InfraCredit’s Insurer Financial Strength Rating at BB-
Global ratings agency Fitch has affirmed Infrastructure Credit Guarantee Company PLC’s (InfraCredit) Insurer Financial Strength (IFS) Rating at ‘BB-‘ and National IFS Rating at ‘AAA(nga)’ with outlooks accorded as stable.
The ratings reflect InfraCredit’s high investment concentration in Nigerian sovereign bonds, its good capitalisation and leverage, and its business profile as a Nigeria-focused financial guarantor, Fitch said.
Ratings analysts said high investment concentration in Nigerian sovereign bonds continues to constrain InfraCredit’s rating and is the primary driver of its very high risky asset ratio of 382% in 2024 from 388% in 2023.
However, the recent upgrade of Nigeria’s sovereign rating to ‘B’/Stable reduced the risky asset ratio to 322% on 2024 pro forma basis, improving the investment and liquidity credit factor score.
Ratings analysts noted InfraCredit’s exceptionally strong net par/capital ratio of 0.5x in 2024 is in line with a ‘aaa’ category assessment for a ‘High Risk’ guarantee portfolio.
The net par/capital ratio significantly improved compared with 2023, driven by a rights issue and new subordinated debt for a combined N43 billion, and a significant increase in re-guarantees.
But Fitch explained that the company’s financial leverage ratio (FLR) remained high at 46%, increasing year on year, driven by new subordinated loans.
InfraCredit’s management engages with prospective new investors, including international development finance institutions and Nigerian private investors to increase its capital in support of its robust transaction pipeline.
Fitch expects the par/capital to increase from current low levels to around 1.5x in the coming years, driven by business growth, but to remain well below the downgrade sensitivity of 5x.
The ratings firm views InfraCredit’s guarantee portfolio as ‘High Risk with no currency risk’ based on its concentrated exposure to the Nigerian economy, broadly in line with other financial guarantors in emerging markets, and the absence of guarantee exposure to foreign-currency loans.
The guarantee company’s portfolio credit quality is non-investment-grade on the international scale as per Fitch note, but has an average ‘BBB’/’BBB+’ rating in a local context, reflecting exposure to good-quality borrowers by Nigerian standards.
Ratings analysts highlighted that guarantees are limited to Nigeria, but diversified across regions and industry sectors, primarily essential utilities in power, logistics and transport with an increasing focus on clean energy and renewables.
Fitch believes the general operating environment for insurers in Nigeria has improved due to significant reforms to restore macroeconomic stability, and enhanced policy coherence and credibility.
The global ratings agency continues to view InfraCredit’s company profile as ‘Favorable,’ based on its important role in supporting the realisation of essential infrastructure development projects in Nigeria and the absence of direct competition due to its unique business focus. InfraCredit’s guarantee portfolio is diversified across domestic regions and industry sectors.
“Like other financial guarantors with a development focus, investment income is the main driver of InfraCredit’s profitability, while the underwriting result is less significant”, Fitch stated.
InfraCredit’s net return from the investment portfolio was consistently above 6% in the past five years and Fitch expects this to continue, driven by high interest rates in Nigeria.
The five-year average return on equity is 30%. Normalized for foreign-exchange volatility, it is about 9%, which is still strong for a development-focused guarantor. Fitch expects improving operating scale to support earnings, with normalised return on equity in the high single- to low double-digit range. GTCO Delivers 49% Return on Investment Year to Date
