PACRA Maintains Entity Ratings of GuarantCo Limited:
GuarantCo Limited, an international Joint Venture development financial institution, is directly and indirectly owned by five highly rated sovereigns. Continuous sponsors support is evident from injections by Australian government’s Department of Foreign Affairs (DFAT) and callable capital from the UK via PIDG. GuarantCo mainly operates in low income, below investment grade countries. Its objective is to facilitate flow of debt capital to projects having bearing on infrastructure and a positive long term impact by offering credit guarantees.
GuarantCo is cautiously building its guarantee portfolio with adequate emphasis on diversification: geographical, entity and sector. More than 60% of the company’s portfolio is tilted to Africa, although GuarantCo is focusing to gain more exposure in Asia supported by their recently opened office in Singapore. There is almost 13% impairment in the quality of guarantee assets. However, given the small size, this might be reflective of otherwise detailed and robust credit evaluation and monitoring framework.
The Company maintains good provision coverage. During 1HCY17, whilst a significant decrease in investment income was witnessed, the overall return on investment remained positive as a result of the fair value of the investments. Provisioning reversals supported reduction in loss. Meanwhile, the sponsors gradually injected fresh funds to keep the company equipped with robust capitalization. A healthy treasury investment portfolio mainly comprising fixed income corporate bonds and US Treasury funded by its equity. Thus liquidity stayed strong along with sizable income stream. GuarantCo Management Company, a fully owned subsidiary of Cardano Development, is fund manager; responsible for commercial operations of GuarantCo. The contract has been assigned for relatively a longer period which is expected to help the management, to pursue a well-conceived strategy to achieve profitability in the near term. Nevertheless, the management's success in achieving its business objectives while capitalizing on its identified niche – infrastructure development remains to be seen.
GuarantCo's ratings are dependent on its robust ownership structure, well supported by implicit indeed demonstrated commitment by the sponsors. The Company's ability to achieve desired growth in its guarantee portfolio is important to pull off from bottom line losses. Meanwhile, close monitoring of asset quality remains critical.
GuarantCo Limited was incorporated in August 2005. The company has executed forty one projects with exposure in seventeen countries to date. The ownership of GuarantCo lies with five governments – four of which (United Kingdom, Sweden, Switzerland, and Australia) own through Private Infrastructure Development Group (PIDG), and the Netherlands through FMO (Dutch Development Bank). GuarantCo's seven member BoD comprises all nonexecutive directors who are qualified professionals with emerging and frontier market experience. In January 2017, Mr. Lasitha Perera replaced Mr. Chris Vermont as the new CEO. Mr. Perera was previously the Chief Investment Officer of the Company and indirectly associated with company since 2009. Mr. Andrew Bainbridge, the chairman of GuarantCo currently holds the position of Group Head US Supervisory Remediation at Standard Chartered Bank and has been the chairman since March 2013.