Moody’s targets Africa for long-term growth

As concerns rise on the level of indebtedness of both governments and corporates in the developed markets, Moody’s Corporation may have foreseen a slowdown in the debt markets in the global loan centres, thus informing its bullishness on Africa, as its next growth frontier and a source of long-term earnings and business sustainability. The recent […]

As concerns rise on the level of indebtedness of both governments and corporates in the developed markets, Moody’s Corporation may have foreseen a slowdown in the debt markets in the global loan centres, thus informing its bullishness on Africa, as its next growth frontier and a source of long-term earnings and business sustainability.

The recent acquisition of a 51 per cent majority stake by Moody’s in Global Credit Rating Company Limited (GCR) may have been predicated on this hypothesis, as it believes expected growth in economic activities across Africa will lead to increased demand for debt financing, with attendant rating activities, Moody’s explained to Daily Trust.

GCR has operations in various African countries including Nigeria, South Africa, Senegal, Kenya and Mauritius through which it provides insight into the continent’s economic activities.

“The transaction is a sign of confidence in GCR and the continent at large. Within the EMEA region, we have identified Africa as a region with long-term economic growth potential and gradual international integration of capital markets, and therefore a growing demand for higher levels of analytical capacity,” a Moody’s spokesman said in response to Daily Trust’s emailed questions.

“By promoting skill sharing and knowledge transfer, Moody’s aims to accelerate GCR’s continued development as a provider of critical insight that facilitates capital market participation across all spectrum of qualified investors,” the spokesman explained further. 

“Moody’s believes that GCR’s successful on-the-ground operations combined with our international expertise will support the further development of capital markets on the continent.

“GCR will remain a separate entity from Moody’s and will continue to develop its own rating methodologies and issue its own credit ratings while maintaining a distinct management team and analytical staff. 

“Customers, both existing and future, can choose the rating service that best meets their needs. No major changes to management or staffing are expected as a result of the transaction,” the spokesman said.

Interestingly, the Chief Executive Officer of GCR in Nigeria, Akin Majekodunmi, CFA, was previously with Moody’s London office, before being headhunted by GCR to head its Nigerian office in a restructuring that took place after the Global Alternative Asset Manager with $169 billion assets under management. 

Carlyle Group bought significant stake in GCR to become the single-largest shareholder, dwarfing the founder management and the DEG, the German Development Bank, which is also a shareholder of GCR.

The founder and CEO of DataPro, the leading credit-rating agency in the country reacted to the entry of Moody’s into Africa noting, “they’ve always made attempts at coming into the market, so their entry is not surprising and I don’t think it’s driven by competition, rather by the untapped latent opportunities in the market and the complementarity of their offerings to what we do as a leading advocate for standardisation and deepening of the debt market in Nigeria and the broader African continent. 

“Our operations are well-regulated, both locally and internationally. More so, we go the extra mile in abiding by the strictest standards of ethics and professional conduct by mitigating conflicts of interests and ensuring we minimise subjectivity to the barest minimum in our rating process,” Mr. Adeseyoju, DataPro Chief Executive, added.

Speaking with Daily Trust, Abiola Rasaq, financial market analyst said, “Moody’s has actively covered Nigeria and a few other African markets for over five years and it has rated debt securities of regional and domestic Development Finance Institutions such as Africa Finance Corporation (AFC) and Bank of Industry (BOI) respectively, in addition to issuing mostly unsolicited non-commercial national scale ratings on the FUGAZ, the top five Nigerian banks which account for over half of industry credit assets and capitalization.

“So, Moody’s isn’t entirely new to the African market and its full entry via a brownfield approach speaks volumes of its ambitions and confidence in exploring the latent and growth opportunities in the African credit market, which is still relatively at an infancy stage.

“Interestingly, all the exchanges in Africa’s largest economy – The Nigerian Exchange, FMDQ Exchange, NASD-OTC and Lagos Commodities and Futures Exchange – are launching new products, many of which should complement regulator’s drive towards deepening the debt offerings and overall capital market penetration,” Rasaq added.

According to him, this trend is similar in many other African markets, from East to South and Central Africa. “There are vast opportunities for enhancing credit market and ratings would be an essential ingredient in this formation process,” he said, adding that “ratings provide a credible background for investment analysis, especially as fund managers and other institutional investors seek to bridge information asymmetry around issuers of debt securities.”

He noted that the scope of use for credit ratings is rising, including its use in counterparty risk assessments in private market transactions and other commercial engagements.

“So, it’s a big market with huge potentials and the entry of global players into the market reinforces the prospect for market efficiency, discipline, and adherence to global best practices. 

“Funds, Fintechs and other non-conventional creditors and savings aggregators are increasingly seeking credit ratings and that’s a positive trend in bridging information asymmetry and helping to bring more sanity to an otherwise opaque system, with the expectation that this development would improve retail and institutional investor participation in the capital market, mitigate abuse and enhance market integrity.”

Again, Adeseyoju says Moody’s entry is a welcome development. “It’s going to uplift the market. Part of the problem that we have been talking about is the fact that the rating industry is under-reported. 

“We are still scratching the surface; a lot of people do not understand what we do. And without the success of the rating industry, the capital market would remain weak.

“We help investors understand the risks they face before they make decisions,” he said.

“There is a joke in America about the only two people that you should be scared about in the world: the government and the rating agencies. Because, if the rating agency does not give you an investment grade, you have been exposed! And in a capitalist-driven economy, where people are looking for investments, they are looking for capital for expansion, you are at the mercy of investors and you must do whatever is relevant to ensure your securities are adjudged investable by the rating agencies.

“During the financial crisis of 2008-9, some rating agencies were also blamed. The rating agencies play a role in correcting certain information asymmetries. That’s why there were a lot of reforms after that final crisis. 

“The real issue then was that the three major rating agencies in the US – Moody’s, Fitch, and S&P were also doing consulting for those people (the companies),” he added.

A lot of times, people were beginning to think that it was the ratings. No; it was because there was a conflict of interest. We have to insulate the analysts so that they don’t become corrupted.