Fitch Upgrades Absa Money Market Fund on Removal of African Bank Exposure

Mon Aug 18, 2014 12:07pm EDT

Related Topics

(The following statement was released by the rating agency) LONDON, August 18 (Fitch) Fitch Ratings has upgraded Absa Money Market Fund's National Fund Credit Rating to 'AA+(zaf)' from 'A(zaf)' and removed it from Rating Watch Negative (RWN). The National Fund Volatility Rating of 'V1(zaf)' is unaffected. KEY RATING DRIVERS The upgrade follows the transfer of the fund's exposure to the financially troubled African Bank to the fund's ultimate parent, Absa Bank Limited (AAA(zaf)/Stable/F1+(zaf)) on 15 August 2014. As a credit-impaired entity the presence of African Bank exposure had a strongly negative impact on Fitch's calculation of the fund's weighted average credit quality. Its removal and replacement with exposure to Absa Bank Limited has had a materially positive impact on the fund's credit quality. Similarly, the removal of the African Bank exposure has removed uncertainty from the fund resulting from African Bank's evolving credit profile. The fund's weighted-average credit quality (as measured by its Weighted Average Rating Factor or WARF) is consistent with a 'AAA(zaf)' National Fund Credit Rating, following the removal of the African Bank exposure. However, Fitch has not upgraded the fund to 'AAA(zaf)' as the agency considers the fund concentrated per its rating criteria. Specifically, Fitch notches down the rating of funds it deems concentrated (as measured by top one, three and five issuer concentrations) by one or more notches from the WARF-implied rating level. This approach is consistent with Fitch's approach to rating other comparable funds in South Africa. The portfolio as of 15 August 2014 comprised only the five highest credit quality South African banks, international banks and government securities making the fund's composition comparable to the most conservative money market funds currently active in South Africa. Fitch recognises the economic loss incurred by the fund as a result of its African Bank exposure. However, the fund's prospective credit quality, following the intervention of the parent bank, is high, consistent with a 'AA+(zaf)' National Fund Credit Rating. RATING SENSITIVITIES Fitch will continue to monitor the fund closely, notably the magnitude of outflows from the fund. A material sudden or sustained outflow could lead Fitch to place the fund back on RWN or downgrade the fund. However, Fitch believes that the action taken by the fund's ultimate parent will support investor confidence in the fund and reduce the potential for further outflows. As of 15 August 2014 the fund had overnight liquidity of around 13%, which is high relative to typical levels observed in South African money market funds. RATING CRITERIA Fitch rates MMFs in South Africa under its global bond fund rating criteria. This reflects the differences the agency perceives between South African MMFs and other Fitch-rated MMFs under its international and national MMF rating criteria. Specifically, the high level of concentration in these funds, a structural characteristic of the South African market, is inconsistent with Fitch's view of the risk profile of a MMF. As a result of this concentration risk South African MMFs are typically unable to achieve a 'AAA(zaf)' National Fund Credit Rating. There are also regulatory differences between US and European MMFs (subject to Rule 2a-7 in the US and ESMA guidelines for MMFs in Europe) and the regulatory regime in South Africa. Contact: Primary Analyst Alastair Sewell Senior Director +44 20 3530 1147 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Richard Woodrow, CFA Associate Director +44 20 3530 1388 Committee Chairperson Davie Rodriguez, CFA Senior Director +1 212 908 0386 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available at www.fitchratings.com. The sources of information used to assess this rating were the public domain and Absa Applicable criteria 'Global Bond Fund Rating Criteria', dated 13 August 2013, is available at www.fitchratings.com. Applicable Criteria and Related Research: Global Bond Fund Rating Criteria here Asset Management in South Africa - Multi-Asset Funds Driving Industry Growth here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

FILED UNDER: