Global Credit affirms Centum’s stable outlook on strong capital, liquidity


Capital Markets

Global Credit affirms Centum’s stable outlook on strong capital, liquidity


Centum chief executive James Mworia. FILE PHOTO | NMG

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Summary

  • The agency said although Centum’s investment portfolio carries concentration risk due to the majority of investments being located and operated within Kenya and real estate, it has been able to balance this out by having a strong financial profile.
  • GCR, however, said the strong assessment is somewhat mitigated by the inherent cash flow variability in Centum’s strategy, given its reliance on asset sales to generate returns.
  • Centum posted a net loss of Sh1.37 billion in the year ended March 2021, its first full-year loss in over 42 years.

South African ratings agency Global Credit Ratings (GCR) has affirmed Centum’s financial rating of A+ with a stable outlook, citing the firm’s strong capital base and healthy liquidity.

The agency said although Centum’s investment portfolio carries concentration risk due to the majority of investments being located and operated within Kenya and real estate, accounting for 65 percent, it has been able to balance this out by having a strong financial profile.

“Centum has indicated its intention to rebalance its portfolio, with real estate investments expected to moderate to 45-55 percent over the next two years, as it looks to unlock capital from selling an interest in its key asset for redeployment into other growth avenues,” said GCR.

“GCR would expect the new investments to contribute to a more diverse investment portfolio, which would be important in offsetting the potential loss of scale post the Centum RE unbundling.”

GCR, however, said the strong assessment is somewhat mitigated by the inherent cash flow variability in Centum’s strategy, given its reliance on asset sales to generate returns.

“We could lower the ratings if the debt to investment asset ratio is not brought back closer to 25 percent in line with the planned deleveraging, and/or there are any signs that Centum’s liquidity is deteriorating. Rating pressure could also result from a substantial loss in scale or deterioration in the quality of the investment portfolio on account of the disposal of any of Centum’s core investments,” said GCR.

“Should the lack of diversification in the investment portfolio worsen, this would also be viewed negatively.”

Centum posted a net loss of Sh1.37 billion in the year ended March 2021, its first full-year loss in over 42 years as it was weighed down by a drop in sales and investment income that failed to stop it from paying dividends.

The loss was a drop from a Sh4.63 billion net profit posted in the preceding financial year.

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