The pressure to create an African credit rating agency has increased in recent weeks. In a recent op-ed, Malado Kaba, a former economy minister for Guinea, wrote: “First, the African continent needs more of its own credit rating agencies. Not only that, it needs agencies that count for the informal sector.” The informal sector in Africa has a much higher weight than in developed countries, and Western rating agencies are accused in emerging markets not to take the informal sector sufficiently into account. The African Union (AU) has answered Ms. Kaba’s call. Said Eddy Maloka, CEO of the African Peer Review Mechanism (APRM), which is in charge with the project: “We are in the process of working on the legal, structural and financial implications of establishing the agency, which will be an entity of the AU.”
There were already two rating agencies for African bonds. The first is GCR Ratings, in which German sovereign wealth fund DEG acquired a “significant stake” (whatever that means) in 2007. In 2016, GCR got another big shareholder in private equity firm Carlyle, which bought a 49.9% stake. But in February of this year, DEG and Carlyle sold GCR to Moody's, one of the world’s three biggest rating agencies. GCR does business in South Africa, Mauritius, Kenya, Nigeria, Senegal and Zimbabwe. The second rating agency was in Egypt, namely the Middle East Rating and Investors Service (MERIS). US-based Moody’s also has a “significant stake” (whatever that means) in MERIS.
The acquisitions reflect that the African bond market is becoming more attractive to international investors. According to the African Development Bank, international bond issuance by African countries totalled around USD 155 billion (EUR 145 billion) for the last ten years.
Regarding the latest rating firm, a supranational organisation such as the AU ruled by the countries which will be rated must prove that it will be truly independent in its analysis. Indeed, all competitors of Moody’s, Fitch and S&P find themselves in a dilemma: If they adopt the same methodology as the Big Three, there is really no need for their ratings. And if they deviate from the established standards, they may be accused of being too lenient. This is also reflected in the ratings themselves. If the ratings are too strict, no issuer will want to commission them. If they are too complacent, no investor will take them seriously.
In Europe, various attempts to challenge the Big Three’s supremacy have been unsuccessful. The Big Three still control 95% of the European market despite the emergence of 20 rating agencies approved by the European financial market authority ESMA.
The Central African Republic (CAR) has become one of the first countries in the world to adopt a crypto currency. Last week, CAR president Faustin-Archange Touadéra announced the launch of the country’s first crypto hub called Sango. As part of the initiative, crypto-related businesses and those who trade with them will not be subject to taxes. A virtual and physical “Crypto Island” will also be created. In late April, Touadéra already established a regulatory framework for cryptocurrency in the CAR and permitted Bitcoin as legal tender. “The formal economy is no longer an option,” Touadéra said of the moves.
However, the World Bank has expressed concerns over this initiative. It also has ruled out that USD 35 million (EUR 33 million) in financial aid given to the CAR has been used to fund the Sango initiative. A spokesperson for the Washington-based institution tells us in an email that the grant is unrelated to any cryptocurrency initiative. He said: “The World Bank is not supporting ‘Sango – The First Crypto Initiative Project’.”
The International Monetary Fund (IMF) also opposes Touadéra’s initiative. "It's really important to not see such things as a panacea for economic challenges our countries face," said IMF Africa Department Director Abebe Aemro Selassie at a recent press briefing. In January, the IMF urged El Salvador to drop a plan to make bitcoin legal tender in that country.
The CAR’s currency regime is governed by the Bank of Central African States (BEAC). The BEAC issues the franc CFA CEMAC which is linked to the euro by a fixed exchange rate of XAF 655.957. BEAC governor Abbas Mahamat Tolli also expressed his reservations to the initiative in a letter to Touadéra’s finance minister. He wrote: “The plan suggests that its main objective is to establish a Central African currency beyond the control of the BEAC that could compete with or displace the legal currency.” Tolli added that this could jeopardise monetary stability in the region.
With an area of 623,000 km2, the CAR is about as large as France and has less than five million inhabitants. Most of them have no access to the internet. Launched in 2010, Bitcoin is the world’s oldest and most traded cryptocurrency. It is a decentralised digital currency that exists on a shared ledger across a global network of computers.
In terms of corporate governance, Glencore, the Switzerland-based commodities trader and mining company (ISIN: JE00B4T3BW64), is turning the corner. To recall: A series of bribery and market manipulation scandals involving Glencore subsidiaries in the US, UK and Brazil suggested that its governance was hugely lacking. Now, however, Glencore CEO Gary Nagle is cleaning up the mess. The company said in a statement last week that it would pay up to USD 1.5 billion (EUR 1.4 billion) in fines to end investigations among regulators in those three jurisdictions.
“We acknowledge the misconduct identified in these investigations,” Nagle said in the statement, adding that Glencore would now build “a world-class ethics and compliance programme.” Some readers may question the seriousness of these words. But investors are not: Glencore’s share price gained 4.5% to GBP 5.1745 (EUR 6.06) on news of the settlement last week. The share is also up 38.1% since January. Beyond this positive investor sentiment, analysts believe that the share price has an average upward potential of 13%.
There is another reason why investors are upbeat about the share. Glencore is expected to sell its 6.4% stake in Yancoal (ISIN: AU000000YAL0), an Australian coal mining company. The buyer is Yankuang Energy Group of China, which wants to buy the 37.7% stake in Yancoal that it does not already own. Yankuang Energy’s bid is said to be worth USD 1.8 billion (EUR 1.7 billion). Given Yancoal’s current market capitalization of EUR 5.3 billion, Glencore shareholders could expect EUR 339 million in proceeds from the deal.
This is what you would call a warm welcome: Shares in Kenya Commercial Bank Group (ISIN: KE0000000315) gained 4.4% last week to KES 36.55 (EUR 0.2940), putting an end to a 19.6% decline since January. The reason: Investors cheered the appointment of Paul Russo as KCB’s new CEO. He succeeds Joshua Oigara (45), who had led the bank since 2013.
During his tenure as CEO, Oigara was rather successful. He expanded KCB’s business via acquisitions in Tanzania and Rwanda, tripled its balance sheet and more than doubled its annual pretax profit. KCB is also active in South Sudan, Uganda and Burundi and plans to expand its business to the DR Congo. But when Oigara’s contract expired, it was not renewed. Given his success, this was a surprise. But the KCB had not comment. The bank’s biggest shareholder is the Kenyan government with a 19.8% stake.
It is not typical for the market to give the new boss of a company so much advance praise. Indeed, Russo did not start his career at KCB as a hands-on banker, but as the head of the bank’s human resources department. But later, he had a successful tenure as CEO of the National Bank of Kenya, a KCB subsidiary. In 2021, National Bank reported KES 1.1 billion (EUR 8.85 million) in profit. This may be one reason for the market’s excitement.
Despite KCB’s good results, the bank is looking quite undervalued with a price-to-earnings (P/E) of just 4.3. Furthermore, KCB’s price-to-book ratio stands at 0.85, reflecting that the market values the bank below its book value.