Johannesburg, 14 December 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, (the “Issuer”) of ‘BBB+(GH)’with a Stable Outlook.
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. The Senior Unsecured Notes benefit from a Negative Pledge that acts as structural protection, 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.
The amount of retail deposits continued to increase which is included as 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. GCR calculated 66.6% of the retail deposits bearing fixed rate interest which yield marginally below the MTN issued debt although having a substantially shorter maturity profile than the MTN debt.
The Issuer maintained the financial covenant above the 150.0% limit for the period under review (May 2018 to October 2018). At October 2018, the Issuer reported the covenant at 165.7%.
The AFB100 (GHS4m), AFB200 (GHS5m) and AFB600 (GHS9m) Notes were repaid on the scheduled redemption date. The AFB1900 (GHS4.7m) were issued in July 2018 and the AFB2000 (GHS10m) were issued in September 2018. Subsequent to these issuances, the Issuer further issued the AFB2100 (GHS3.5m), the AFB2200 (GHS21.3m) and the AFB2300 (GHS19.2m) Notes in October 2018. The AFB1900, AFB2000 and AFB2200 Notes have a five year tenor whilst the AFB2100 and AFB2300 Notes have a six year maturity. The AFB1900, AFB2000, AFB2100 and AFB2200 Notes have a 2.0% cap and collar rate.
The non-payroll loans reported provisions for bad debt of 21.3% (17.5% at June 2018), whilst payroll loans have a 3.4% (4.7% at September 2017) provision for bad debt at October 2018. The gross non-payroll loans proportion of the total loan book continued to increase to 40.1% (23.5% at April 2018) at October 2018. The close monitoring of non-payroll loans continue to be imperative, given the provisions and lower collection rates of non-payroll loans.
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.
GCR reviewed the ratings on the Global Consumer Asset Backed Securitisation (ABS) Rating Criteria updated in September 2018.
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 73% carries the qualification “Superior 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.
Primary analyst Secondary analyst
Corné Els Yehuda Markovitz
Senior Structured Finance Analyst Structured Finance Analyst
+27 11 784 1771 +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, updated 2018;
Global Master Structured Finance Rating Criteria, updated 2018;
Global Consumer Asset Backed Securitisation (ABS) Rating Criteria, updated 2018;
Global Master Criteria for Rating Banks and Other Financial Institutions – Mar ’17;
AFB (Ghana) plc Rating Announcement – Jun ’18.
RATING LIMITATIONS AND DISCLAIMERS
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|Asset||An item with economic value that an entity owns or controls.|
|Bad Debt||A bad debt is an amount owed by a debtor that is unlikely to be paid when due, for example, to a company going into liquidation. This typically refers to default rather than delinquency.|
|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 X 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.|
|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.|
|Provision||An amount set aside for expected losses to be incurred by a creditor.|
|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.|
|Securitisation||Is a process of repackaging portfolios of cash-flow producing financial instruments into securities for sale to third parties.|
|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.|
|Yield||Percentage return on an investment or security, usually calculated at an annual rate.|
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 Issues.
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 October 2018;
- Signed Applicable Pricing Supplements for the Senior Unsecured Notes;
- Issuer’s Management Account/Performance Report from May 2018 to October 2018.