African Union cautions that Afreximbank’s future Fitch ratings could mislead investors
The ratings watchdog for the African Union warned on Tuesday that Fitch Ratings could be “misinforming investors” if it kept evaluating Afreximbank’s credit after the lender broke up its relationship with the “Big Three” company.
The decision was made on Friday by the bank, which was formerly known as the African Export-Import Bank (Afreximbank), citing issues with the agency’s methodology.
The African Peer Review Mechanism of the AU said in a statement released on Monday that it believed Afreximbank’s decision was appropriate.
The APRM stated in a statement that any ratings that Fitch might provide in the future about the Bank would be unsolicited and non-participatory, which could lead to investors being misinformed.
Regarding the APRM’s stance, Fitch declined to comment.
Citing excessive credit risks and inadequate risk-management procedures, Fitch lowered Afreximbank’s credit rating to one notch over “junk” status in June and placed it on a “negative outlook”—a rating agency term that warns of another reduction in the future.
The APRM stated that disagreements over the caliber of Fitch’s “rationale, analytical framing, and interpretation of risk sources” were adequate grounds to cut connections, and it did not take into account Afreximbank’s judgment about the downgrading.
The so-called “Big Three” rating agencies—Moody’s, Fitch, and S&P Global Ratings—are accused by the AU and several African countries of unfairly evaluating the risk of lending in Africa, which raises borrowing costs.
All three agencies claim that their ratings are based on the same formula across continents and have denied any prejudice.
Afreximbank, a trade and project finance company, is being questioned about whether it has “preferred creditor status,” which would protect its loans to financially troubled nations like Ghana and Zambia from losses resulting from debt defaults.
Any deterioration of Afreximbank’s favored creditor position could result in further rating actions, according to Fitch.
Although Moody’s has never granted Afreximbank a ratings “uplift” for favored creditor status, the agency did lower it to two notches over “junk” in July.
