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Kenya: Trade Insurer Gets Stable Rating From S&P
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Business Daily (Nairobi)
6 May 2008
Posted to the web 6 May 2008
Steve Mbogo
The Nairobi-based African Trade Insurance Agency which insures foreign companies willing to invest in Africa against political risk and offers export credit insurance has received a stable rating from Standard & Poor's (S&P) Ratings Services.
The long term rating of 'A' indicates a strong capitalisation and means the agency is financially stable, can offer more businesses, and will give better returns to its shareholders.
"The ratings on ATI reflect very strong capitalisation, strong investments, and strong liquidity," said S&P analysts.
The stable rating is also because ATI places invested funds in strongly rated banking institutions, with funds overwhelmingly in dollars.
S&P ratings also indicated that ATI is constrained by the undeveloped nature of the target insurance markets in the African region, and the lack of a proven track record for operational control within the business.
"We do not generally consider the member countries of ATI able to sustain sovereign ratings better than weak to marginal, and this affects ATI's potential financial flexibility and ability to recover qualifying losses from member states," said the analysts.
S&P said the potential for adverse economic conditions in the African region are significant, but are partially offset by ATI's preferred creditor status with its member countries, and by the backing of the World Bank's International Development Association, which supports anti-poverty programs in the poorest developing countries with long-term, no interest loans.
ATI's current capital adequacy at December 31, 2007 was equivalent to over 90 per cent of gross underwriting exposure meaning that it can cover its exposure without borrowing additional money.
"Although capitalisation will weaken as business volume grows, we expect capital utilization controls to ensure capitalization remains very strong at greater than 43 per cent of net exposure," said S&P analysts.
ATI was started through an initiative of the Common Market for Eastern and Central Africa (COMESA) to encourage intra-Africa trade. It is however open to all African countries who are members of the African Union.
The currently 12-member body has provided investment insurance for transactions valued at over Sh23 billion by end of March 2008 and supported exports worth Sh10 billion by the same period.
More than a half of its deals have been sealed in Kenya (51 per cent) followed by Zambia at 18 per cent, Tanzania at 13 per cent, Uganda at 12 per cent and the Democratic Republic of Congo at 4 per cent.
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Most of its funds are invested in agribusiness (27 per cent) flowed by mining at 17 per cent, real estate at 16 per cent, information technology at 15 per cent, tourism at 12 per cent, commodities at 11 per cent and manufacturing at 2 per cent.
Peter Jones, chief executive of the ATI said the strong rating will help provide financial institutions with benchmarks required for them to feel more confident about their financial decisions when lending to companies that are supported by ATI.
"Most global enterprises and financial institutions today consider credit rating as more important than market information that companies produce to demonstrate their strength and financial standing," he said Mr Jones.
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