Afreximbank, a pan-African commerce finance establishment, has accused score company Fitch of giving an “faulty view” on its publicity to potential losses, because the lender faces strain over whether or not it totally disclosed the riskiness of loans made to Ghana and different cash-strapped nations.
Fitch Scores final week mentioned that the Cairo-based multilateral lender was susceptible to struggling losses on an estimated $2bn in loans to Ghana, Zambia, Malawi and South Sudan, if it was not handled as a most popular creditor. It added that the financial institution had “weak threat administration insurance policies”, used “flexibilities” allowed by accounting requirements to mark loans as performing and confronted “larger solvency threat”.
In response, Afreximbank this week put out a strong assertion, saying that it “operates underneath very excessive requirements of monetary transparency”, had complied with worldwide accounting requirements and was not ready to participate in debt restructurings.
Issues over Afreximbank’s loans have grown following a Could 15 name, on which it informed bond buyers that Ghana was “updated” on funds.
Nevertheless, the Ghanaian finance ministry responded later that month that it had not paid the financial institution for 2 years and that “no creditor has been handled preferentially”. In accordance with a letter seen by the Monetary Instances, Ghana’s finance ministry wrote to the financial institution final month asking for talks on a restructuring of $750mn in loans so it may exit a long-running default.
The escalating dispute centres on a rift amongst collectors about whether or not Afreximbank is working like different multilateral establishments to which it likens itself and that lend cash at low charges for growth, or whether or not it supplied riskier finance to make excessive returns that ought to expose it to potential losses.
“For a decade, [Afreximbank president Benedict] Oramah has been prepared to take dangers most multilateral growth banks wouldn’t even ponder,” mentioned Vivid Simons, head of analysis at Imani, a think-tank in Ghana.
“Within the course of, he has turned an obscure establishment into one with huge clout in African capitals as a result of he lends when others recoil,” he added. “However it has additionally misplaced its veneer as a protected, staid, conservative MDB.”
Based in 1993, Afreximbank — which is owned by a spread of African governments in addition to establishments exterior Africa reminiscent of China’s Exim Financial institution — historically targeted on shorter-term commerce finance. It largely lent to personal debtors, particularly in Nigeria and Egypt, its largest shareholder international locations.
However over the previous decade it has made extra direct loans to governments, lots of whom are shareholders which were locked out of world bond markets by excessive rates of interest lately.
Its 2024 financial statements show that solely 2.3 per cent of its loans had been non-performing as on the finish of final yr. Nevertheless, Fitch estimates that the actual determine is greater than 7 per cent, given the disputed Ghana loans alone account for two.4 per cent of the financial institution’s property.
In Could, an English court docket case ruled that South Sudan had been in default for years on loans making up greater than 2 per cent of Afreximbank’s property. The financial institution received a judgment to claw again $650mn however the nation — one of many world’s poorest — didn’t participate in proceedings.
Afreximbank didn’t reply to a request for remark. It has beforehand mentioned it’s engaged on a compensation plan with South Sudan.
Fitch mentioned final week that the financial institution’s possession construction had “led to strain to extend lending operations, on the expense of prudent development aims”.
The company final week lower its score on the financial institution to 1 notch above junk and mentioned it may take away its investment-grade score if the lender was included in a restructuring.
Nevertheless, Afreximbank and supporters within the African Union say that, just like the IMF and World Financial institution, the lender ranks as a senior creditor and due to this fact shouldn’t need to take losses in a restructuring. This week it mentioned it could not be collaborating in any such debt offers, citing the treaty organising the financial institution. TDB, a trade-focused lender in east and southern Africa, can be claiming this standing in debt talks with Zambia.
Nevertheless, “there may be nothing that may be construed as conferring most popular creditor standing” in Afreximbank’s treaty, mentioned Simons.
The financial institution’s claimed standing can be underneath scrutiny due to the comparatively excessive rates of interest it costs on loans, in contrast with different multilateral lenders, and the payouts it makes to personal shareholders. Not like with different multilateral lenders, governments partaking with it use non-public intermediaries, reminiscent of banks that take a price.
The financial institution reported virtually $1bn in revenue final yr and paid virtually $320mn in dividends for 2023. It’s projecting that property will improve to $50bn this yr.
Ghana, which defaulted in 2022 months after it borrowed from Afreximbank at over 6 per cent above a benchmark rate of interest, is pushing particularly laborious for its restructuring to incorporate Afreximbank.
The nation agreed with official lenders to increase $5bn of debt and a restructuring of $13bn of bonds prior to now yr with guarantees that it could not give different collectors preferential offers.
“Treating Afreximbank as a most popular creditor would imply different collectors must take larger losses to compensate Afreximbank for a mortgage that they really feel shouldn’t have been made within the first place,” mentioned Chris Humphrey, growth finance specialist at think-tank ODI.
Ghana should open up to bondholders by the top of this month whether or not it has complied with its promise of equal therapy.
ODI’s Humphrey mentioned Afreximbank’s resistance to a debt restructuring in Ghana contrasted with the method taken by TDB, which was ensnared in Zambia’s 2020 debt default after it rolled over short-term commerce loans that had been often protected.
“TDB don’t really feel that they need to need to restructure their Zambia loans, however they’re partaking constructively with different collectors to attempt to put this complete episode behind them. Afreximbank is taking a way more confrontational method,” he mentioned.
A downgrade to junk would pose an issue for Afreximbank as a result of lots of its bonds are owned by buyers reminiscent of insurers that usually solely maintain investment-grade paper.
About one-third of Afreximbank’s funding additionally comes from money reserves by debtors and deposits made by African central banks, which the financial institution can use to bolster lending. These would even be delicate to a junking of its credit score.
“It’s a story of mission creep for Afreximbank,” one investor mentioned. “If you wish to do hyper-expensive sovereign bailouts within the craziest zip codes you could find, your price of finance goes to replicate that.”
