Lagos, Nigeria, 19 April 2021 – GCR Ratings (“GCR”) has assigned a national scale long term indicative rating of BBB(NG)(IR) to Daraju Industries Funding Plc’s proposed N10bn Series 1 Senior Unsecured Bonds. The Outlook on the rating is Stable.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|N10bn Series 1 Bond||Long Term Issue||National||BBB(NG)(IR)*||Stable|
*IR stands for Indicative Rating.
The Issuer, Daraju Industries Funding Plc, is a special purpose vehicle incorporated for the purpose of raising debt through the issuance of Bonds in order to subscribe to the Notes to be issued by the Sponsor, pursuant to a Master Notes Subscription Agreement. GCR recently accorded a long-term rating of BBB(NG) to the Sponsor, Daraju Industries Limited, on the back of its established market niche and diversified product portfolio which have facilitated stable earnings and cash flows over the cycle.
The Issuer is in the process of registering a N15bn Bond Issuance Programme (“the Programme”) with Securities and Exchange Commission and expects to issue up to N10bn in Series 1 under the Programme, with a five-year tenor. The Bonds shall constitute direct, unconditional, senior and unsecured obligations of the Issuer, backed by the irrevocable and unconditional undertaking of the Sponsor and shall rank pari passu without any preference among themselves and all unsecured creditors of the Issuer and at least pari passu with the claims of all holders of both present and future unsecured and unsubordinated obligations of the Issuer. The bond net proceeds will be utilised for refinancing of the existing loans of the Sponsor. GCR expects that the Sponsor will continue to generate robust cash flows sufficient to meet its Bond obligations and continue to demonstrate financial flexibility.
Given that the Sponsor offers timely and full coverage of all payments due to the bondholders, under the Series 1 Senior Unsecured Bonds through the Deed of Undertaking, the Bonds bear 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, the long-term rating for the Series 1 Bonds is equivalent to the Sponsor’s long term senior unsecured rating. Accordingly, any change in the Sponsor’s long-term credit rating would impact the issue rating.
The indicative rating assumes that the conditions in the notes will not change and will receive regulatory approval.
The Stable Outlook reflects GCR’s expectations that the Sponsor will continue to generate robust cash flows and operate profitably over the outlook period. Along with the proposed bond issue, this will help to reduce the high and short dated debt profile.
Given that the indicative rating is intrinsically linked to the Issuer’s long-term rating, any change in the rating assigned to the Issuer will directly affect the Bond rating.
Positive rating action could emanate from a meaningful improvement in the debt maturity profile. Attaining or exceeding earnings targets should also ensure improved cash flows and a reduction in the overall quantum of debt. The rating could come under pressure if the company is unable to refinance its short-term debt. Further, persistent liquidity pressure would likely mean that gearing remains high and debt service coverage relatively weak.
|Primary analyst||Samuel Popoola||Analyst|
|Lagos, Nigeria||Samuel@GCRratings.com||+234 1 904 9462|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Corporate Entities, May 2019|
|GCR’s Nigeria Country Risk Score report, February 2021|
|GCR’s FMCG Sector Risk Score report, February 2021|
|Daraju Industries Limited Issuer rating report, March 2021|
Daraju Industries Funding Plc’s Series 1 Bond
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|N10bn Series 1 Bond||Initial/new||National||BBB(NG)||Stable Outlook||April 2021|
Risk Score Summary
|Rating Components & Factors||Risk scores|
|Country risk score||3.75|
|Sector risk score||3.00|
|Management and governance||0.00|
|Leverage and Cash flow||(1.50)|
|Credit Risk||The possibility that a bond 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.|
|Indicative Rating||An indicative Rating is denoted by an ‘IR’ suffix to indicate that a credit rating has been accorded based on review of final draft documentation and expectations regarding final documentation.|
|Issuer Ratings||See GCR Rating Scales, Symbols and Definitions.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|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 bond 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.|
|Refinancing||The issue of new debt to replace maturing debt. New debt may be provided by existing or new lenders, with a new set of terms in place.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
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 Daraju Industries Funding Plc. 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.
Daraju Industries Funding Plc 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 Daraju Industries Funding Plc, the Sponsor and other reliable third parties to accord the credit rating included:
- 2019 audited annual financial statement, and prior four years annual financial statements;
- 2020 full year management accounts;
- 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;
- Draft Series 1 Trust Deed
- Draft Programme Trust Deed
- Draft Shelf Prospectus
- Draft Master Notes Subscription Agreement
- Draft Deed of Undertaking