Lagos, Nigeria, 24 September 2021 – GCR Ratings (“GCR”) has assigned a national scale long term issue rating of BBB+(NG) to Family Homes Sukuk Issuance Programme Plc’s N10bn Series 1 Ijarah Lease Sukuk Issue.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|N10bn Series 1 Ijarah Lease Sukuk Issue||Long Term Issue||National||BBB+(NG)||Stable Outlook|
The Issuer, Family Homes Sukuk Issuance Programme Plc, is a special purpose vehicle incorporated as funding entity, owned and sponsored by Family Homes Funds Limited (“FHF”, “the Sponsor”), solely for the purpose of raising finance for its Sponsor. GCR recently affirmed the Sponsor’s national scale long-term senior unsecured rating of BBB+(NG), underpinned by very strong capitalisation, good funding, and liquidity profile, as well as relatively moderate credit risk, albeit constrained by its limited track record.
In July 2021, the Issuer registered a N30bn Sukuk Issuance Programme (“the Programme”) with the Securities and Exchange Commission, and subsequently raised N10bn in Series 1 Sukuk Issue under the Programme. The Series 1 Sukuk Issue has a tenor of seven years, with maturity in 2028. In terms of ranking, the Sukuk constitutes direct, unconditional, senior, and unsecured obligations of the Issuer and at all times ranks pari passu and without any preference among themselves. The Series 1 Sukuk’s net proceeds will be utilised for the Sponsor’s business operations.
Payment obligations of the Issuer in respect of the Sukuk Issue are to be secured by a Counter ISPO issued and duly approved by the Honourable Minister of Finance, charged on FHF’s account domiciled with the Central Bank of Nigeria to enable the deduction of N173,706,900 monthly for 84 months to meet the Issuer’s obligations under the Series 1 Sukuk. Remittances shall commence from 30 days after the issue date and credited into a payment account being managed by the Trustees. GCR considers the source of the Counter ISPO deductions as forming a part of the working capital available for day-to-day operations of FHF, which has been factored into the Issuer ratings accorded to the Sponsor. Consequently, the Counter ISPO deductions do not qualify as a credit rating enhancement in GCR analysis.
Given that FHF offers timely and full coverage of all payments due to the Sukukholders, under the Series 1 Sukuk Issue through the Counter ISPO, the Sukuk Issue bears the same default risk as its Sponsor and would reflect similar recovery prospects to senior unsecured creditors in the event of a default. As such, any change in the rating assigned to the Sponsor would affect the Series 1 Sukuk Issue rating.
Given that the rating is intrinsically linked to the Sponsor’s national scale long-term senior unsecured credit rating, any change in the rating assigned to the Sponsor will directly affect the Sukuk rating.
A positive rating migration is contingent on the Sponsor’s ability to achieve targets in line with its operating model, as well as establishment of a strong financial track record over the medium term. Conversely, a negative rating action may follow a weakened earnings generation capacity, higher than expected funding towards on-balance sheet property development activities which could increase the risk profile, or a reduction in the likelihood of government support.
Family Homes Sukuk Issuance Programme Plc’s N10bn Series 1 Sukuk Issue
|Rating class||Review||Rating scale||Rating||Outlook||Date|
|Long term Issue||Initial/last||National||BBB+(NG)(IR)*||Stable||May 2021|
IR stands for Indicative Rating
|Primary analyst||Femi Atere||Senior Analyst|
|Lagos, Nigeria||Femi@GCRratings.com||+234 1 9049462|
|Committee chair||Vinay Nagar||Senior Analyst, Financial Institutions|
|Johannesburg, ZA||Vinay@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Financial Institutions, May 2019|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|GCR’s Nigeria Country Risk Score report, August 2021|
|Family Homes Funds Limited Issuer rating report (2020-21)|
|GCR’s Financial Institutions Sector Risk Score report, February 2021|
|Credit Risk||The possibility that a Sukuk Issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Diversification||Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|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. In insurance, it refers to an individual or company’s vulnerability to various risks|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Maturity||The length of time between the issue of a Sukuk or other security and the date on which it becomes payable in full.|
|Rating Horizon||The rating outlook period|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Sukuk||A Sharia-compliant bond-like instruments used in Islamic finance.|
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process 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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to the Issuer and the Transaction Arranger. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
Family Homes Funds Limited, the Issuer and the Transaction Arranger participated in the rating process via tele-conferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from the Issuer and other reliable third parties to accord the credit rating included:
- 2020 audited annual financial statement, and prior two years annual financial statements of the Sponsor.
- Internal and/or external management reports;
- Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties;
- Information specific to the rated entity and/or industry was also received;
- The Shelf Prospectus
- Programme Trust Deed
- Series 1 Sukuk Pricing Supplement
- Series 1 Sukuk Trust Deed
- ISPOs from the participating States
- Counter ISPO from the Federal Ministry of Finance