Johannesburg, 19 May 2017 — Global Credit Ratings (“GCR”) has upgraded the final, public long term credit rating accorded to the Medium Term Notes (“MTN”) Programme of AFB (Ghana) PLC to ‘BBB+(GH)’ from ‘BBB(GH)’ and maintained the Stable Outlook.
The Senior Unsecured Notes 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 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 ratings exclude 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 150.0% limit for the period under review (October 2016 to February 2017). The lowest reported number for the period under review was 153.2% (February 2017). The AFB1100 Notes (GHS8.9m) were issued on 3 March 2017 followed by another AFB1200 Notes (GHS6.9m) issued on 20 March 2017, which increased the total amount of debt in issuance to GHS78.28m. The Issuer has GHS11.6m of MTN that is scheduled to mature in July 2017 with another GHS1.5m in September 2017.
The AFB loan portfolio consists of 96.1% or GHS104.7m, at February 2017, payroll collected loans with the remaining GHS4.2m in Direct and Smart Cash loans. The non-payroll loans attracted substantial provisions for bad debt, currently at 29.4%, whilst payroll loans have a 7.0% provisions for bad debt at February 2017.
The rating of the MTN Programme 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 98.4% 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 upgraded the long term national scale rating of the MTN Programme to ‘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 – Sep ’16;
Global Master Structured Finance Rating Criteria – Feb ’17;
Global Consumer Asset Backed Securitisation Rating Criteria – May ’16;
Global Master Criteria for Rating Banks and Other Financial Institutions – Mar ’17;
AFB (Ghana) PLC Rating Announcement – May ’17;
AFB (Ghana) PLC Senior Unsecured Notes New Issuance Rating Announcement – Sep ’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.
|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.|
|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.|
|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.|
|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.|
|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.|
|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.|
|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 of terms this announcement please click here.