CAIRO, Feb 3 – JPMorgan has upgraded African Export-Import Bank (Afreximbank) bonds to “overweight” from “underweight,” arguing that a sharp selloff following a high-profile credit rating downgrade has made the debt attractive relative to benchmarks.
In a note on Monday, the US investment bank said the decline in Afreximbank bond prices after Fitch Ratings cut the lender to junk status last week had created value for investors willing to look past near-term uncertainty.
“We think that this selloff in Afrexim bonds has created more value in these bonds and made these attractive relative to benchmarks,” JP Morgan analysts said, effectively issuing a buy recommendation.
Fitch downgraded Afreximbank after concluding that the bank did not benefit from preferred creditor status following an agreement that imposed losses on its loans to Ghana as part of the country’s debt restructuring. Afreximbank, whose main shareholders are African governments, subsequently severed ties with Fitch, arguing that the agency’s methodology failed to reflect its legal mandate and treaty protections.
After the downgrade, Fitch withdrew its ratings, citing commercial reasons, ending its analytical coverage of the lender. The rating had been solicited, meaning Afreximbank paid the agency to provide and maintain it.
Moody’s is now the only major credit rating agency that continues to rate Afreximbank. Moody’s has not indicated it will follow Fitch’s move, a key factor for investors given that Afreximbank bonds will remain eligible for JP Morgan’s widely tracked investment-grade bond indexes as long as Moody’s rating stays in place.
JP Morgan analysts said Afreximbank should be able to adapt its lending practices to limit exposure to future sovereign debt restructurings. They also expect continued backing from member states.
“Sovereigns should also remain supportive to Afrexim and keep giving it preferred treatment wherever they can,” the analysts said.
