GCR Affirms AIICO Capital Limited Rating with Stable Outlook
GCR Ratings (GCR) has affirmed AIICO Capital Limited’s national scale long- and short-term issuer ratings of A-(NG) and A2 (NG) respectively, with a stable outlook.
In a rating note, GCR said The affirmation of AIICO Capital Limited, the asset management company ratings reflects the sustained strong group support from its assimilation and importance to its parent, AIICO Insurance Plc.
Also, the ratings balance the asset manager’s good risk position and adequate liquidity against an intermediate leverage assessment due to significant on-balance sheet exposures, GCR said.
The rating note stated that AIICO Capital ranks as one of the top five asset managers in Nigeria, with funds under Management (FUM) of N329.3 billion or USD205.6 million as of 30 June 2024 from N291.2 billion in Dec.2023 and an estimated market share of 9.0%.
GCR said the asset manager’s strong market position is supported by its affiliation with the group, with 83.2% of FUM representing managed funds on behalf of AIICO Insurance.
Additionally, AIICO Capital manages five other funds, which are managed on both discretionary and non-discretionary basis. As part of its business expansion strategy, AIICO Capital incorporated two wholly owned subsidiaries-AIICO issuing house and AIICO finance house in 2024.
“We expect improved operational scale at the new subsidiaries as well as the planned fixed-income fund launch to support the asset manager’s business diversification and earnings generation over the next 12 to 24 months”.
GCR said sustainability assessment is neutral to the ratings.
However, the rating agency said it recognised the ongoing litigation and claims against AIICO Capital which may heighten reputational risks and negatively impact profitability in the event of an unfavourable court ruling.
“We have assessed capital and leverage to be within the intermediate range. The GCR leverage ratio improved slightly to 8.3% in the financial year which ended 31 December 2023 from 7.7% in 2022, driven by increased internal capital generation.
“The metric improved further to 11.2% as of June 30 2024, supported by a slight reduction in the on-balance sheet Guaranteed Income Liabilities (GIN), following the withdrawals by some corporate clients due to their yield sensitivities amid the high-interest rate environment”.
GCR expects its leverage ratio to range between 8%-10% over the next 12-18 months balancing the asset manager’s projected growth in the on-balance sheet GIN and the earnings accretion.
AIICO Capital’s risk position is positive to the ratings with approximately 56% of total assets held in FGN domestic bonds, while the remainder is in near-cash instruments and bank placements with investment-grade financial institutions.
GCR said the issuer foreign currency (FCY) risk remained minimal, with 16% of guaranteed on-balance sheet liabilities in FCY investments as of 31 December 2023, which were adequately matched by FCY financial assets.
However, earnings quality remains vulnerable to market volatility due to exposures within the trading portfolio, according to the rating note.
“While we noted a considerable increase in impairment charge in 2023 due to the asset manager’s additional provisions on the defaulted Ghana Eurobonds, we do not foresee any further negative impact on profitability over the next 12-18 months, given the level of provisions made to date.
“We assessed funding structure and liquidity profile as positive ratings factor. The funding structure comprises price-sensitive guaranteed income liabilities from corporate clients, with the associated risks managed by the asset manager”.
As of 31 December 2023, GIN grew by 18.6% to N38.5 billion or USD43.2million), although declined to N34.4 billion or USD21.5million in the first six months of 2024 due to the high-interest rate environment.
Looking forward, analysts expect the dominance of corporate depositors to remain over the next 12-18 months, even as the asset manager seeks to grow its retail business.
AIICO Capital’s liquidity position is satisfactory, with liquid asset coverage of guaranteed income liabilities improving to 72.9% as of 31 December 2023, demonstrating the manager’s ability to meet fundholders’ withdrawal requests.
“We expect this position to be maintained over the next 12 to 18 months”. AIICO Capital benefits from strong group support due to its material ownership by the group, a good track record of support and close assimilation with the group, the rating note stated.
GCR said the stable outlook reflects our expectations that AIICO Capital will maintain its strong competitive position in the industry, with the new subsidiaries expected to support business diversification over the next 12-24 months.
Also, analysts said they expect the GCR leverage ratio to range between 8%-10% over the rating horizon, while the risk position and liquidity profile sustained at a strong range. #GCR Affirms AIICO Capital Limited Rating with Stable Outlook CBN Defends Naira with $39m in Forex Market
