Moody’s downgrades Shelter Afrique rating

Ratings agency Moody’s has once again downgraded Shelter Afrique’s long-term issuer rating and placed the financier on review for further downgrade.

Shelter Afrique is now graded B3 from Ba3 issued last November, putting the mortgage lender a heartbeat away from the ‘C’ grade which Moody’s designates as ‘poor quality and very high credit risk’.

The New York-based agency said the downward review was informed by Shelter Afrique’s low capital ratios, low liquidity levels, and slow injection of equity by member states.

“The key driver for the three notch downgrade was the rise in liquidity risk over the course of the review period, given the challenges that Shelter Afrique faces in raising the funding needed to meet its debt service needs over the coming months,” Moody’s said in its latest update dated February 17.

“Furthermore, the outlook for Shelter Afrique’s funding and liquidity still remains uncertain, with many creditors remaining unwilling to reopen lines of credit.”

The B3 rating is junk status defined by Moody’s as “speculative and a high credit risk”. The rating of a financier is key in accessing funding from institutional investors and the cost of borrowing.

Moody’s second downgrade review comes as South African rating agency GCR lowered Shelter Afrique’s long-term rating to B (KE) from A+(KE) while short-term rating has fallen to B (KE) from A1(KE).

READ: GCR cuts Shelter Afrique rating

On November 8, Moody’s downgraded Shelter Afrique to Ba3 from Ba1, following a whistleblower’s report alleging the lender was dishing out subprime mortgages and cooking financial statements.

This was allegedly through restructuring overdue loans by rescheduling such facilities to appear they are performing, thereby suppressing the volume of toxic mortgages.

Shelter Afrique last week reported a net loss of $12.68 million (Sh1.26 billion) for the year ended December 2016.

The lender also restated its 2015 financials to dip into the red with a net loss of $4.94 million (Sh494 million) and loans amounting to $274 million, from a net profit of $3.11 million (Sh311 million) and loan book of $281.3 million earlier published.

The ratings agency reckons shareholders, including Kenya, had arrears in paid-in capital amounting to about $90 million at the start of 2017.

On Monday, the lender received $5.8 million from Cameroon and Africa Re while more has been committed.

Shelter Afrique needs $127.96 million to meet this year’s committed obligations and maintain a 15 per cent liquidity ratio, legal, risk and compliance director Vipya Harawa said in a notice ahead of the January extraordinary meeting held in Nairobi.

READ: Shelter Afrique gets Sh597m cash injection

READ: Troubled Shelter Afrique set for Treasury’s bailout

ALSO READ: Shelter Afrique loss hits Sh13bn on bad loans

Deloitte carried out a forensic audit on Shelter Afrique. The in-depth review confirmed the allegations raised by the whistleblower, but fingered former head of finance Godfrey Waweru for contravening rules on reporting and confidentiality.

Then managing director James Mugerwa left office on Feb 1 after the Shelter Afrique board adopted the forensic audit report. Femi Adewole, director in charge of business development, is currently the acting boss.

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