Fitch Ratings on April 27, 2012 affirmed and simultaneously removed Ecobank Transnational Incorporated’s (ETI) Long-term Issuer Default Rating (IDR) at ‘B-‘ and Viability Rating (VR) at ‘b-‘ from its Rating Watch Negative (RWN).
ETI’s Long-term IDR and VR were placed on RWN following the acquisition of the failed Nigerian bank, Oceanic Bank (Oceanic) in August 2011 and reflected Fitch’s concerns on the impact of the transaction on ETI’s capitalisation and asset quality.
But the rating agency in a press release said “Following the publication of ETI’s 2011 consolidated financial statements, including detailed asset quality data, and the public announcement of the forthcoming $250 million capital increase, it is Fitch’s view that ETI’s financials and risk are commensurate with a ‘B-‘ Long-term rating.”
The fresh capital will be provided by Public Investment Company (PIC) of South Africa, wholly owned by the Ministry of Finance of South Africa, serving as principal asset management company for the public sector of the Republic of South Africa.
Fitch says ETI’s capitalisation post capital increase remains weak when considering the Togolese-based lender’s asset quality and dynamic external growth in a volatile operating environment.
Any deterioration in ETI’s capitalisation puts downward pressure on its ratings. Fitch estimated that when the $250 million capital injection takes place, ETI’s Fitch core capital (FCC) ratio will reach 11.9% (9.5% at end-2011) while its Basel 1 Tier 1 ratio will be around 15% (12.5%), it added.
On a stand-alone basis, ETI’s liquidity position is tight in Fitch’s opinion. The $250 million capital raised will to some extent be down streamed to subsidiaries; the provision of capital to any subsidiary from ETI’s own available resources would put ETI’s liquidity under severe stress.
Fitch recognises that there are potential synergies that may result from ETI’s acquisition of Oceanic, if ETI completes the integration successfully.
The rating actions are as follows:
Long-term IDR: affirmed at ‘B-‘, removed from RWN
Short-term IDR: affirmed at ‘B’, removed from RWN
Viability Rating: affirmed at ‘b-‘, removed from RWN
Support Rating: affirmed at ‘5’
Support Rating Floor: affirmed at ‘ NF’
By Ekow Quandzie