LONDON: Investment bank JPMorgan on Monday switched its view on African Export-Import Bank (Afrexim) bonds from “underweight” to “overweight,” saying the decline following last week’s high-profile credit rating downgrade made them attractive again.
Fitch downgraded Afreximbank to ‘junk’ status last week. The reasoning was that the blow from the bank’s agreement to loan to defaulting Ghana was a sign that the company did not benefit from the so-called “preferred creditor status” that traditionally protects development lenders in the event of a default.
Afrexim, whose major shareholder is an African government, had severed ties with Fitch over the bank’s treatment.
“We believe this (the decline in Afrexim bonds) has increased the value of these bonds and made them attractive relative to the benchmark,” said JPMorgan analysts, who changed their view to “overweight”, effectively a buy.
Following the downgrade, Fitch also withdrew its rating on Afrexim after the company severed its relationship with Afrexim. This is a “solicited” rating, meaning the bank paid Fitch to provide and maintain the rating.
This makes Moody’s the only major agency that still rates the bank. Moody’s has not indicated any intention to follow Fitch. That means Afrexim’s bonds will continue to be included in JPMorgan’s influential investment-grade-only index as long as Moody’s holds them.
Analysts independent of JPMorgan’s index unit said Afrexim should be able to adjust its lending practices to reduce the risk of being caught up in further debt restructurings.
“The sovereign should also continue to support Afrexim and continue to give him preferential treatment wherever possible,” they added. (Reporting by Mark Jones; Editing by Susan Fenton)
