The chances of Afreximbank getting involved in a debt restructuring have increased, JPMorgan said on Tuesday, while also upgrading its recommendation on the lender’s bonds to overweight, citing valuations in the wake of the Fitch downgrade.
The African trade and development lender has been at the centre of a standoff over whether the loans it extended to Ghana and Zambia – two countries that recently defaulted – are in scope for restructuring or not.
Fitch downgraded Afreximbank’s credit rating to one notch above junk earlier this month, with a negative outlook, citing high credit risks and weak risk-management policies and pegging Afreximbank’s non-performing loans at 7.1% at the end of 2024.
Afreximbank says that as a multilateral lender it has preferred creditor status, which protects its loans from restructurings in Ghana, Zambia and Malawi.
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“If the bank gets involved in a restructuring (the chances of which have increased…), Fitch could downgrade the bank further from IG (investment grade) to HY (high yield) at some point, which could lead to some forced selling of bonds,” JPMorgan said in a research note.
However, the adjustment in valuations on Afreximbank’s 2029 and 2031 bonds following Fitch’s downgrade now made the bonds “attractive” with both maturities trading 75 basis points wide of the average across other BB-BBB rated bonds.
This compensates for the risk of further adverse rating actions on the bank, which are possible, JPMorgan’s Konstantin Rozantsev added in the note.
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