Johannesburg, 19 October 2016 — Global Credit Ratings (‘GCR’) has affirmed the final, public long term credit rating of ‘BBB(GH)’ with a Stable Outlook accorded to the Medium Term Notes (‘MTN’) Programme of AFB (Ghana) PLC.
The Senior Unsecured Notes (GHS66,7m) are issued by the Issuer under its MTN Programme. GCR will review the MTN Programme Senior Unsecured Notes rating as and when new debentures are issued in order to assess the recovery prospects of the transaction, which will be accompanied by a Ratings Announcement.
The Senior Unsecured Notes benefit from a Negative Pledge that acts as structural protection and a contractual restriction to the Notes, which restricts the Issuer from creating any additional security (except for Permitted Encumbrances). The final, public rating accorded to the MTN Programme relate to ultimate payment of interest and principal (as opposed to timely, akin to an expected loss rating, which is a function of probability of default and loss severity). The rating excludes an assessment of the ability of the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.
The Issuer is an unsecured lender licenced by the Bank of Ghana as a non-banking financial institution (‘NBFI’), having met the minimum capital requirement of GHS15m, under the Financial Institutions (Non-Banking) Law of 1993 and under the Banking Act, 2004 (Act 673) as amended under the Non-Bank Financial Institution Act, 2008 (Act 774). The Issuer has a payroll lending model primarily targeting Ghanaian government employees.
The Issuer maintained the Receivables to Net External Debt Ratio financial covenant above the 150% limit for the period under review (March to September 2016). The lowest reported number for 2016 was 155% (January 2016) which increased marginally to 164% at September 2016. The AFB1000 Notes (GHS9m) were issued on 26 September 2016, increasing the total amount of debt in issuance to GHS66.7m, with a further GHS4m issuance planned for January 2017.
The AFB loan portfolio consists of 95% or GHS94.0m, at September 2016, payroll collected loans with the remaining GHS5.0m in Direct and Smart Cash loans. The non-payroll loans attracted substantial provisions for bad debt, currently at 37%, whilst payroll loans have a 8% provisions for bad debt at September 2016.
The rating of the Senior Unsecured Notes is derived by applying a notching approach, starting from the long term unsecured credit rating of the Issuer. In determining the appropriate number of rating notches to be applied, GCR compares the estimated overall recovery rate after a potential default of the MTN Programme with an assumed average corporate senior unsecured debt obligation recovery rate. If overall estimated recoveries are higher than the assumed average recovery rate, a notching uplift may be applicable. Based on GCR’s Global Structurally Enhanced Corporate Bonds Rating Criteria, the calculated overall recovery rate of 92.8% carries the qualification “Excellent Recovery Prospects”.
A three notch national scale rating uplift on the Ghanaian national scale long term rating of the Issuer was deemed to be appropriate for the MTN Programme. Accordingly, GCR has accorded a long term national scale rating to the MTN Programme of ‘BBB(GH)’ with a Stable Outlook.
Senior Structured Finance Analyst
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Sector Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Summary Structurally Enhanced Corporate Bonds Rating Criteria – Oct ’15;
Global Master Structured Finance Rating Criteria – Feb ’16;
Global Consumer Asset Backed Securitisation Rating Criteria – May ’16;
Global Master Criteria for Rating Banks and Other Financial Institutions – Mar ’16;
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.
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Capital||The sum of money that is used to generate proceeds.|
|Covenant||A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.|
|Credit||A contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Debt||An obligation to repay a sum of money.|
|Default||A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Lender||A credit provider that is owed debt obligations by a debtor.|
|Long-Term Rating||A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Loss||A tangible or intangible, financial or non-financial loss of economic value.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Negative Pledge||A pledge made by a creditor that it will not incur any debt or event that may negatively impact the transaction or entity or material subsidiary.|
|Notching||A movement in ratings.|
|Obligation||The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.|
|Pledge||Constituted by an agreement between the pledgor, who undertakes to deliver the article, and the pledgee, and subsequent delivery of the property in question as security for debt. A pledge is only applicable to movable property.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Receivables||General term for economic benefit derived from an asset.|
|Recovery||The action or process of regaining possession or control of something lost. To recoup losses.|
|Repayment||Payment made to honour obligations in regards to a credit agreement in the following credited order: 3.) Satisfy the due or unpaid interest charges; 4.) Satisfy the due or unpaid fees or charges; and 5.) To reduce the amount of the principal debt.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|Senior||A security that has a higher repayment priority than junior securities.|
|Senior Unsecured Debt||Securities that have priority ahead of all other unsecured or subordinated debt for the payment in the event of default.|
|Short-Term Rating||A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Ultimate Payment||A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.|
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 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 Issuer 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 Issuer and other reliable third parties to accord the credit ratings included:
- Payment Projection Rundown of the loan book as at 31 August 2016;
- Loan Book performance from October 2013 to August 2016;
- Signed Applicable Pricing Supplements for the Senior Unsecured Notes;
- Issuer’s Management Account/Performance Report from September 2014 to September 2016;
- Issuer’s Audited Annual Financial Statements for 28 February 2011; 29 February 2012; 31 December 2012, 31 December 2013; 31 December 2014 and 31 December 2015;