Johannesburg, 15 June 2018 — Global Credit Ratings (“GCR”) has affirmed the final, public long-term credit rating accorded to the Medium Term Notes (“MTN”) Programme of AFB (Ghana) PLC of ‘BBB+(GH)’with a Stable Outlook. The rating expires on 17 November 2018.
The Senior Unsecured Notes were and are to be 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 Rating 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 relates 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’), under the Banks and Specialised Deposit-taking Institutions Act, 2016. The Issuer mainly operates a payroll lending model primarily targeting Ghanaian government employees.
GCR noted an increase in the amount of Retail Deposits from November 2017 and has accordingly included the exposure along with the MTN Programme debt (on a pari-passu basis) for the calculation of the Receivables to Net External Debt Ratio financial covenant.
The Issuer maintained the financial covenant above the 150.0% limit for the period under review (October 2017 to April 2018). At April 2018, GCR calculated the covenant at 205.0%.
The Issuer gained approval from the Bank of Ghana in April 2018 to increase the MTN programme limit from GHS100m to GHS300m in order to allow future funding requirements.
The AFB400 (GHS4m), AFB500 (GHS2.3m) and AFB700 (GHS5m) Notes were repaid ahead of the scheduled redemption date to partially reduce refinancing risk ahead of the upcoming maturities. The AFB1600, AFB1700 and AFB1800 Notes were issued in May 2018. The AFB1600 Notes have a fixed rate with a seven year tenor, whilst the AFB1700 and AFB1800 Notes have a 2.0% cap and collar rate, coupled with a six and five year tenor respectively.
The proceeds of the Notes issued in May 2018 will be used to: i) partially repay the GHS38m loan from an affiliated entity Letshego, effectively converting internal debt to external debt with the remainder of the proceeds; ii) to fund loan growth; and iii) pre-empt the July to September maturities as they become due. GCR received confirmation that the funds may only be utilised in the abovementioned way. The funds are currently held in two highly rated Ghanaian commercial banks.
GCR noted an increase of the non-payroll loans book which accounts for 23.5% of the total portfolio. These receivables are deemed to be riskier that the payroll ones. GCR will continue to monitor the proportion of these receivables in the total portfolio.
The Issuer undertakes not to create any Encumbrance, other than the Negative Pledge of Permitted Encumbrances, over any present or future business undertakings, assets or revenue to secure any present or future indebtedness.
The rating of the MTN Programme is derived by applying a notching approach, starting from the long-term unsecured credit rating of the Issuer of ‘BB+(GH)’ with a Positive Outlook. 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 international average corporate senior unsecured debt obligation recovery rate. Based on GCR’s Global Structurally Enhanced Corporate Bonds Rating Criteria, the calculated overall recovery rate of 70% 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.
Therefore, GCR affirmed the long-term national scale rating of the MTN Programme of ‘BBB+(GH)’ with a Stable Outlook.
Senior Structured Finance Analyst
+27 11 784 1771
Sector Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Summary Structurally Enhanced Corporate Bonds Rating Criteria – Nov ’17;
Global Master Structured Finance Rating Criteria – Feb ’17;
Global Consumer Asset Backed Securitisation Rating Criteria – May ’17;
Global Master Criteria for Rating Banks and Other Financial Institutions – Mar ’17;
AFB (Ghana) PLC Rating Announcement – May ’17;
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.
|Asset||An item with economic value that an entity owns or controls.|
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|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.|
|Debenture||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|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 90 days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.|
|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.|
|Loan||A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.|
|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.|
|Medium Term Notes||Debt securities with a tenor ranging from 3 months to 15 years.|
|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.|
|Pari Passu||Side by side; at the same rate or on an equal footing. Securities issued with a pari passu clause have rights and privileges that are equivalent to those of existing securities of the same class.|
|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.|
|Proceeds||Funds from issuance of debt securities or sale of assets.|
|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.|
|Redemption||The repurchase of a bond at maturity by the issuer.|
|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.|
|Tenor||The term or duration of a debt security.|
|Transaction||A transaction that enables an Issuer to issue debt securities in the capital markets. A debt issuance programme that allows an Issuer the continued and flexible issuance of several types of securities in accordance with the programme terms and conditions.|
|Ultimate Payment||A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.|
|Under Review||Failure to carry out a full review of a rated entity within the designated timeframe, either through lack of information or delays in finalisation, i.e. review is ongoing.|
For a detailed glossary, please click here.
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 30 April 2018;
- Loan Book performance from October 2017 to 14 March 2018;
- Signed Applicable Pricing Supplements for the Senior Unsecured Notes;
- Issuer’s Management Account/Performance Report from October 2017 to April 2018;
- Issuer’s Audited Annual Financial Statements for 28 February 2011; 29 February 2012; 31 December 2012, 31 December 2013; 31 December 2014, 31 December 2015, 31 December 2016 and 31 December 2017 (draft).