Mr. Stanislas Zeze, Founder and CEO, Bloomfield Investment
25 August 2015
AfDB: what is the importance of ratings in deepening the African Bond Market?
Bloomfield CEO, Stanislas Zeze: One of the major problems of African bond market is the absence of systems of risk segregation which allow investors to have clarity on market and investment risk and also provide the opportunity for Bond issuers to establish their credit quality. This current state of operations creates a level of distrust between investors and issuers and as a result African bond markets are weak and not very attractive. One other issue is the cost of borrowing in African bond markets in the absence of a ratings system which is replaced by the system of guarantees that significantly increase the cost of borrowing. The role of credit rating agencies is precisely to assess the probability of default of the issuers, allow a more efficient allocation of capital, assess the cost of borrowing and provide a closer monitoring of risk. We strongly believe, and experience has proved us right, that credit rating seems to be one of the key drivers to deepen African bond markets by reducing the information asymmetry between issuers and investors on one hand and make the bond market more transparent and efficient on the other hand.
AfDB: What is the value-added that African-based credit rating Agencies bring to the market?
Bloomfield CEO, Stanislas Zeze: African based credit rating agencies are closer to the risk environment in which investors wish to invest and issuers wish to borrow. They have a better understanding of the risk embedded in investing in Africa as our continent is still not sophisticated and can have specificities that are different from mainstream. The cultural aspect of things is deeply linked to the risk environment. Also, African based rating agencies do their ratings in local currency which is more appropriate and corresponds more to the need of issuers and investors as the rating in local currency will establish the true credit quality of the entity rated. The low level of foreign currency reserves of African countries will skew the rating of African countries and companies when the rating is done on the basis of the US Dollar. In fact, owing to the shortage of foreign reserves on the continent which leads to tight foreign currency policies on international transfers, the ratings are consequently negatively affected. A given company can be very rich in local currency but very poor in US dollars because of the level of reserves of its country. This situation will systematically penalize this company in a foreign denominated rating.
AfDB: Discuss the possibility for a dedicated African ratings scale.
Bloomfield CEO, Stanislas Zeze: What we can call a dedicated African ratings scale is nothing other than a scale based on local currency. All African based ratings agencies (the continent has 4 ratings agencies) have their rating scale denominated in local currencies. There is an equivalent in USD denominated scale for those wishing to borrow from the international bond market. There are two types of rating scales. The long term rating scale which will establish the fundamentals of the entity rated, its capacity and willingness to respect its medium to long term financial obligations (20 notches with 10 investment grades and 10 speculative grades) and the short term rating scale, which will assess the capacity and the willingness of the rated entity to respect is short term financial obligations (7 notches with 5 investment grades and 2 speculative grades).
AFDB: Discuss the work that Bloomfield is conducting, your scope and the expected impact
Bloomfield CEO, Stanislas Zeze: Bloomfield Investment Corporation is the first francophone Africa Credit Rating Agency. We are based in Abidjan with offices in Douala and Kigali. We are licensed in the WAEMU, Cameroon and Rwandan financial markets. Bloomfield Investment intervenes in all five credit risk categories (Financial Institutions, Sovereign, corporate, public entities & local government, financial instruments).
We are structured in four operating departments. Rating services department, Economic and financial markets research department, Bloomfield SME& SMI Department and the Administrative support department. We are present in ratings operations in 15 countries in Africa and 2 countries in Europe. In 8 years of existence we have completed more than 500 ratings in all categories and a portfolio of 100 entities expected by the end 2015.
We have had a tremendous impact on the transformation of the financial market in WAEMU by contributing, through our work and our credit rating promotion efforts, to the introduction of mandatory credit rating in the financial market. The market regulator in WAEMU (Conseil Regional de l'Epargne Publique et des Marchés Financiers) has introduced a regulation ( CREPMF instruction 37/2009) that makes it mandatory for all bond issuers, all securities issuers, all guarantors and all FCTC to be systematically rated. This is a fundamental advance in terms of making the stock market (BRVM) more attractive and significantly reduce the cost of borrowing on this market.
We have becoming a reference on the continent when it comes to credit ratings. Our approach is adapted, adequate and realistic for countries, corporations and local governments on the continent and for all international investors and borrowers wishing to come and do business on the continent.