JP Morgan upgraded its stance on African Export-Import Bank (Afrexim) bonds to “overweight” from “underweight” on Monday, saying the recent selloff following a major credit rating downgrade had improved their investment appeal.
Last week, Fitch lowered Afreximbank’s rating to junk status, citing losses linked to the bank’s exposure to debt-troubled Ghana. Fitch argued that the losses indicated the lender did not enjoy “preferred creditor status,” which typically shields development finance institutions during sovereign defaults. Afrexim, largely owned by African governments, subsequently cut ties with Fitch over its handling of the rating.
JP Morgan analysts said the decline in Afrexim bond prices had created value and made them more attractive compared to benchmark securities, prompting the upgrade to an “overweight” recommendation, which effectively signals a buy.
Following the downgrade, Fitch also withdrew its rating of Afrexim after the bank ended its relationship with the agency. The rating had been solicited, meaning Afrexim paid Fitch to provide and maintain it.
Moody’s is now the only major ratings agency still covering the bank, and it has not indicated plans to follow Fitch’s move. As a result, Afrexim’s bonds are expected to remain in JP Morgan’s widely tracked investment-grade-only bond indices, provided Moody’s maintains its current rating.
JP Morgan analysts, who operate independently from the bank’s index division, said Afrexim is likely to adjust its lending approach to limit exposure to future sovereign debt restructurings. They also noted that sovereign governments are expected to continue supporting the bank and grant it preferential treatment where possible.
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