Announcements

Adcorp Holdings Limited – New Rating Accorded and Existing Ratings Affirmed

Johannesburg, 27 November 2014

— Global Credit Rating Co. (‘GCR’) has accorded a final, public Long Term credit rating of ‘A(ZA)’ with a Stable Outlook to the following Senior Secured Notes issued on 27 November 2014:

· R200m Secured Term Notes, stock code ADCB04, maturity 27 November 2017 (“R200m 3 Year Secured Term Notes”).

Concurrently, GCR has also affirmed the final, public Long Term credit rating of ‘A(ZA)’ with a Stable Outlook to the following Senior Secured Notes:

· R400m 5 Year Secured Term Notes, stock code ADCB01, maturing 8 March 2018 (“R400m 5 Year Secured Term Notes”); and

· R100m 3 Year Secured Term Notes, stock code ADCB02, maturing 31 July 2016 (“R100m 3 Year Secured Term Notes”).

The ratings of the R400m 5 Year Secured Term Notes, stock code ADCB01; R100m 3 Year Secured Term Notes, stock code ADCB02 and R200m 3 Year Secured Term Notes, stock code ADCB04 are valid until February 2015 unless an earlier rating is accorded to Secured Commercial Paper or Secured Term Notes.

The Secured Term Notes are collectively referred to as the Group 1 Notes.

RATING RATIONALE

The rating of the Group 1 Notes is derived by applying a notching approach, starting from the long term unsecured corporate credit rating of Adcorp Holdings Limited (‘BBB(ZA)’) with a rating uplift of three national scale notches deemed appropriate for the Group 1 Notes. The ratings of the Group 1 Notes incorporate the recoveries from the ceded trade receivables. The ratings accorded to the Group 1 Notes relate to the ultimate (as opposed to timely, akin to a loss severity rating therefore) repayment of the principal and interest.

None of the financial covenants were breached during the time under review. The Debtors Cover Ratio reached an all-time low of 1.50x as at 31 May 2014, and an all-time high of 3.05x as at 30 September 2014. This is largely due to Adcorp reducing their Interest Bearing Debt from R788.6m in May 2014 to R614.0m in June 2014. It must be noted that the Interest Bearing Debt does not include unsecured encumbrances of any sort as defined in the Finance Documents.

On 31 October 2014, Adcorp announced their fulfilment of outstanding conditions to acquire the remaining shares of Kelly Group Limited (‘Kelly’). This followed the Competition Tribunal’s unconditional approval of the proposal made for the remaining shares. Adcorp received a R175m Takeover Regulation Panel (‘TRP’) Guarantee to purchase the outstanding shares from the existing Kelly shareholders, which is secured by the trade receivable debtors book. R170m of the guarantee was called upon and therefore became a loan from RMB. It is Adcorp’s intention to settle the loan through operating cash (R34m) and the remaining portion (R136m) through an additional shares issue, all of which is expected to be finalised by end November 2014. On 27 November 2014, Adcorp confirmed receipt of the R136m proceeds of the additional shares issued. The loan has not been factored into the recovery calculation because the trade would have been executed as the time of issuing the R175m Secured Term Notes.

Based on GCR’s Global Structurally Enhanced Corporate Bonds Rating Criteria, the calculated overall recovery rate of 80.8% carries the qualification “Superior Recovery Prospects”. A three notch rating uplift on the national scale is deemed to be appropriate for the Transaction. Accordingly, GCR has accorded a final, public Long Term credit rating of ‘A(ZA)’ with a Stable Outlook to the R200m 3 Year Secured Term Notes. GCR concurrently affirmed the final, public Long Term credit rating of ‘A(ZA)’ with a Stable Outlook to the R400m 5 Year Secured Term Notes and the R100m 3 Year Secured Term Notes.

RATINGS HISTORY

Stock code

Initial Rating

Long Term Rating

Short Term Rating

Outlook

ADCB01

8 March 2013

A(ZA)

n.a

Stable

ADCB02

11 October 2013

A(ZA)

n.a

Stable

ADCB04

27 November 2014

A(ZA)

n.a

Stable

Stock code

Last Rating

Long Term Rating

Short Term Rating

Outlook

ADCB01

15 August 2014

A(ZA)

n.a

Stable

ADCB02

15 August 2014

A(ZA)

n.a

Stable

ADCB04

n.a

n.a

n.a

n.a

ANALYTICAL CONTACTS

Corné Els

Structured Finance Analyst

+27 11 784 1771

CorneE@globalratings.net

Committee Chairperson

Emma-Jane Fulcher

Head: Structured Finance Ratings

+27 11 784 1771

fulcher@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Summary Structurally Enhanced Corporate Bonds Rating Criteria – revised Oct ’14;

Adcorp Holdings Limited Senior Secured Term Notes Surveillance Report – Aug ’14;

Global Master Criteria for Rating Corporate Entities – Aug ’14;

Adcorp Holdings Limited Rating Report – Nov ’14

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: http://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: http://GLOBALRATINGS.NET/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT http://GLOBALRATINGS.NET.

GLOSSARY OF TERMS/ACRONYMS USED AS PER GCR’S STRUCTURED FINANCE GLOSSARY IN THIS ANNOUNCEMENT

Bad Debt

Amounts in arrears, i.e. overdue, and often classified as defaulted or written-off.

Commercial Paper

A debt security of short term nature, less than a year.

Corporate Credit Rating

A credit rating accorded to a corporate entity.

Credit Rating

A rating accorded to the performance of either ultimate or timely payment of obligations.

Credit Rating Agency

A party that provides an opinion on the credit quality of assets, debt securities and companies.

Credit Risk

The probability or likelihood that a borrower will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).

Lien

A right of retention of someone else’s property due to expensed money or labour on property acquires a lien until payment is made.

Liquidity Risk

The risk that a financial instrument cannot be traded on its market price due to the size of the market.

Long Term Rating

A credit rating based on the opinion of the ability to repay long term (more than a year) obligations.

Property

Movable or immovable asset.

Rating Watch

Indicates that a rating is under review for possible change in the short-term and the movement may be either positive or negative.

Short Term Rating

A credit rating based on the opinion of the ability to honour short term (less than a year) obligations.

Stock Code

A unique code allocated to a publicly listed security.

Structured Finance

A method of raising funds in the capital markets. A Structured Finance transaction is established to accomplish certain funding objectives whist reducing risk.

Trade Receivables

A legally enforceable claim for payment to a business by its customer or clients for goods supplied and or services rendered in execution of the customer’s order.


SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The Issuer and the Arranger participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.

The rating/s above were solicited by the Arranger of the Transaction; GCR has been compensated for the provision of the ratings.

The credit rating/s has been disclosed to the Issuer and the Arranger with no contestation of the rating.

The information received from the Arranger / Issuer:

· Signed Applicable Pricing Supplement.

· Historical trade receivables data of the total and ceded portfolio from January 2008 to September 2014;

· Debtors aging statistics for the abovementioned period;

· Provisions for bad debts and actual write-offs from provisions for the abovementioned period;

· Monthly collections for the abovementioned period;

· Audited financial statements of the Issuer for the year ended 28 February 2014 and year-to-date (October 2014) management accounts;

· Adcorp Holdings Credit Policy, credit application and terms & conditions;

· Compliance Certificate dated 31 October 2014; and

· Adcorp Legal Report as at 10 October 2014.

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