Fitch Rates BOI Senior Note Participation Notes ‘B (EXP)’
Fitch Ratings has assigned Bank of Industry Limited’s (BOI) senior note participation notes an expected long-term rating of ‘B (EXP)’, affirmed Long-Term Issuer Default Rating at ‘B’ with a stable outlook.
According to the global rating firm, the notes will be issued by BOI Finance B.V., a Netherlands-based special purpose vehicle (SPV) established solely to provide funding for BOI.
It said the notes’ expected rating is in line with BOI’s and Nigeria’s Long-Term IDRs of ‘B’ due to the transaction’s features. However, the assignment of a final rating is contingent on a review of the final terms and conditions conforming to information already received by Fitch.
Under the transaction’s structure, Fitch said BOI Finance will use the proceeds of the notes to purchase a senior note issued by BOI. According to the rating detail, BOI’s financial obligations under the senior note will be irrevocably and unconditionally guaranteed by the Federal Government of Nigeria (FGN).
The rating note revealed that the FGN guarantee does not apply to the notes issued to investors by BOI Finance but to BOI’s obligations to BOI Finance under the senior note.
However, given the guarantee and structural features of the transaction, in Fitch’s view, if BOI fails to meet its obligations under the senior note, the FGN’s guarantee would serve to ensure the full repayment of principal and interest on the notes issued by BOI Finance.
It explained that BOI’s Long-Term IDR is equalised with Nigeria’s sovereign rating currently pegged at B with a stable outlook.
“This reflects our view that the Nigerian authorities have a high propensity to support BOI, if required, given BOI’s 99.9% state ownership, long-lasting policy role and strategic importance to the country’s economic development, and the entirety of its wholesale funding being either provided or guaranteed by the Nigerian state”, Fitch said.
BOI is Nigeria’s primary development bank, and its important role would be difficult to transfer to another state-owned institution, Fitch stated. The local development bank has diversified its funding since the onset of the pandemic. In March and December 2020, the bank secured two large syndicated loan facilities of EUR1 billion and USD1 billion, respectively.
The sum was obtained as credit from syndicates of commercial banks and multilateral development banks, which are fully guaranteed by the Central Bank of Nigeria (CBN). Read: Moody’s Downgrades Interswitch’s Ratings to B3 with Stable Outlook
The proceeds of the borrowings are swapped with the CBN, boosting its foreign-exchange reserves and providing BOI with Nigerian naira to support its developmental activities: Channeling substantial funding to borrowers and priority sectors.
The rating note revealed that at the end of the first half of 2021, 48% of BOI’s total assets were kept in liquid government bonds and cash, compared with 20% at the end of the financial year 2019.
However, the rating said BOI maintains solid capitalisation and leverage metrics at end of the first half in 2021 with an equity-to-asset ratio of 19.4%, which is prudent for the bank’s exposure to the volatile operating environment.
While profitability is not a key objective of BOI, it continues to generate reasonable returns on equity which printed at 18% annualised in the first half of 2021; driven by healthy net interest margins and moderate loan impairment charges so far. #Fitch Rates BOI Senior Note Participation Notes ‘B (EXP)’
