Global Credit Ratings (“GCR”) has accorded final ratings of ‘BBB(ZA)(sf)’ and stable outlooks to the following senior secured notes (the ‘Senior Notes’) issued on 10 July 2012 by Idwala Industrial Holdings (Pty) Ltd (the ‘Issuer’ or ‘Idwala’):
• R780mln bullet senior secured notes, stock code IDW001, coupon 3M Jibar + 3.83%, maturing 30 June 2016.
• R515mln amortising senior secured notes, stock code IDW002, coupon 3M Jibar + 3.60%, maturing 30 June 2016.
The aggregate R1.295bln Senior Notes have been secured by a variety of the Issuer’s assets which includes, amongst others, buildings, plant & machinery, equipment, locomotives, vehicles, stock and trade receivables (the ‘Transaction’). The Transaction entails the public listing of the Senior Notes on the Interest Rate Market of the Johannesburg Stock Exchange and forms part of a newly established R2.5bln Domestic Medium Term Note Programme. The Transaction sponsor is FirstRand Bank Limited, acting through its Rand Merchant Bank division (‘RMB’). RMB also serves as the joint arranger for the transaction with Nedbank Capital (a division of Nedbank Ltd).
The Transaction was analysed by estimating recovery prospects arising from an enforcement by Micawber 620 (Pty) Ltd (RF) (the ‘Security SPV’) of the underlying collateral that serves as security for the benefit of the Senior Noteholders. It is noted that the Senior Noteholders benefit from a second ranking guarantee provided by the Security SPV in relation to the proceeds arising from an enforcement of the underlying collateral. A second ranking guarantee has also been provided by the Security SPV to permitted hedge providers (ranking pari passu and pro rata with the Senior Noteholders), whilst a first ranking guarantee has been provided to the permitted working capital facility providers (ranks senior to the Senior Noteholders and permitted hedge providers).
The rating of the Senior Notes is derived by applying a notching approach, starting from the long term senior unsecured corporate credit rating of Idwala. In determining the appropriate number of rating notches to be applied, GCR compares the estimated overall recovery rate after a potential default of the Senior Notes with an assumed average corporate senior unsecured debt obligation recovery rate. If overall estimated recovery prospects are higher than the assumed average recovery rate, a notching uplift may be applicable. Under such a scenario, the recovery prospects on the Senior Notes is deemed to be commensurate with a 2 notch national scale rating uplift from the long term senior unsecured corporate credit rating of Idwala.
The rating accorded to the Senior Notes is a ZAR currency long term national scale rating. The rating accorded to the Senior Notes relates to ultimate payment of interest and principal (as opposed to timely, akin to a loss severity rating therefore). The rating excludes an assessment of the ability of the Issuer to pay any (early repayment) penalties. The rating of the Senior Notes incorporates recoveries potentially arising from the sale of the underlying collateral and can therefore not be compared with, for example, a traditional corporate credit rating (the latter typically refers to probability of default only). If the rating or outlook of the Issuer changes, the ratings of the Senior Notes may also change, but not necessarily in the same quantum. The ratings of the Senior Notes may also change if recovery prospects on the underlying collateral changes materially and/or if the First Ranking Amount under the Permitted Working Capital Facilities materially changes.
Idwala, established in 1998, is one of South Africa’s leading mineral mining and processing corporations, focusing on the quarrying, processing and distribution of high grade burnt lime, calcium carbonate and magnetite. In addition, the group also holds exclusive agency distribution rights for multiple internationally recognised products. Idwala’s operations are divided into two business segments, the Lime Division and the Industrial Minerals Division. The Lime Division markets its products to a broad number of industries including mining, construction, water and effluent treatment. The Industrial Minerals Division supplies calcium carbonate products to the paper, paint, plastics and other industries where it is used as a filler or for a source of calcium. Idwala has secured long term mining rights in South Africa, and is one of the two major producers of burnt lime. GCR has accorded Idwala a long and short term rating of ‘BB+(ZA)’ and ‘A3(ZA)’ respectively, with a Positive Outlook.
The new issuance report entitled “Idwala Industrial Holdings (Pty) Ltd – R1.295bln Senior Secured Floating Rate Notes”, dated 10July 2012, replaces the prefunding report published on 14 May 2012. The new issuance report is available to subscribers of GCR’s structured finance subscription service. GCR analysed the Transaction by applying its Criteria for Rating Corporate Entities and Globally Structurally Enhanced Corporate Bonds Rating Criteria. The criteria reports are available at www.globalratings.net.
Rishentra Naidoo, Credit Analyst – Structured Finance, Johannesburg, firstname.lastname@example.org, +27 11 784 1771.
Alfons Ideler, Head of Structured Finance, Johannesburg, email@example.com, +27 11 784 1771.
Eyal Shevel, Head of Corporate Sector, Johannesburg, firstname.lastname@example.org, +27 11 784 1771.