Wednesday, July 24th, 2024 09:20 | By
Credit rating agency. PHOTO/PRINT
South African rating firm GCR has withdrawn Centum Real Estate Limited’s BBB+ (KE) and A2 (KE) ratings without review, potentially impacting investor trust, borrowing, and financial planning.
The withdrawal of the Nairobi Securities Exchange (NSE) listed firm was attributed to “business reasons” without further explanation, meaning GCR will no longer support Centum’s credit rating.
Although GCR clarified that “a credit rating withdrawal does not imply that the entity is not servicing its debt obligations or that its financial position has deteriorated,” the move raises concerns about Centum’s future financial health, given its heavy reliance on outsourcing debt through the capital markets.
Credit ratings serve as a critical barometer of an issuer’s financial stability, allowing investors to gauge risk before making investment decisions.
The absence of Centum Real Estate’s ratings could erode investor confidence and create uncertainty. Without a clear assessment of creditworthiness, investors may hesitate to buy the company’s bonds or shares.
Last year when GCR gave the firm the BBB+ (KE) rating, this was an indication that Centum faces moderate credit risk, suggesting that the company is reasonably stable and capable of fulfilling its financial commitments, though it remains vulnerable to adverse economic conditions or unexpected changes.
The A2 (KE) short-term rating reflected a satisfactory ability to repay short-term debt obligations, showcasing a healthy level of liquidity and financial flexibility. Centum has actively utilised bond issuances to secure capital for its ongoing housing projects, realizing over Sh6 billion between December 2020 and December 2023.
Access to debt markets becomes more challenging without a credit rating, as lenders use ratings to assess risk and set interest rates. The lack of a rating may also lead to higher borrowing costs for Centum Real Estate, with lenders potentially demanding a risk premium due to the absence of independent evaluation.
While day-to-day operations may continue unaffected, the absence of a credit rating can impact strategic decisions, making it harder to raise capital through debt issuance or refinance existing debt.
The company may also need to explore alternative financing options or rely more on equity. The withdrawal of Centum Real Estate’s ratings sends a signal to the market, suggesting that GCR Ratings no longer supports the creditworthiness of the company.
Investors, analysts, and competitors may interpret this as a red flag, potentially affecting stock prices and damaging the company’s reputation.