Lagos Nigeria, 28 December 2020 — Global Credit Ratings has assigned an indicative national scale long-term rating of ‘A-(NG)’ to Lekki Gardens Estate Limited’s proposed N10bn Fixed Rate Senior Secured Bonds, with the outlook accorded as Stable. The indicative rating expires in May 2021.
Global Credit Ratings (“GCR”) has accorded the above credit rating to Lekki Gardens Estate Limited’s (“the Issuer”) proposed N10bn Secured Bonds based on the following key criteria:
The Issuer, Lekki Gardens Estate Limited, is one of the leading real estate development companies in Nigeria, with a relatively strong track record, particularly, considering its diverse real estate portfolio across residential, commercial and retail property segments. GCR affirmed the national scale long term rating of BBB(NG) accorded to the Issuer in November 2020, with the outlook accorded as ‘Stable’. Key rating strengths include its relatively strong competitive positioning, moderate credit risk profile, as well as the sustained profitability since FY17.
Lekki Gardens Estate Limited is in the process of registering a N10bn Senior Secured Bond Issuance with FMDQ Private Markets Limited. The Bond shall be secured by mortgaged properties, and issued by way of private placement to finance its expanding business. The Bond shall constitutes direct, unconditional, senior and secured obligations of the Issuer and shall at all times rank pari passu and without any preference or priority among themselves. The Bond has a tenor of three (3) years, with expected maturity in 2023.
Pursuant to the terms of the Draft Trust Deed, the Issuer shall create a security interests over some of its assets in accordance with terms of the Deed of Legal Mortgage and Tripartite Deeds of Legal Mortgage. To value the mortgaged properties, GCR has utilised the total market values of the real estate properties as determined by an independent valuer. GCR has applied a 50% haircut to the market value of the real properties. Management indicated that there is no encumbrance on the security interests. The Draft Trust Deed feature a negative pledge and other covenants, to protect the interests of bondholders.
GCR has received a legal opinion from the Solicitors which inter alia indicates that the transaction documents (upon execution) and the security documents (upon perfection) shall be valid, binding and enforceable in accordance with their terms.
The indicative rating is derived by applying a notching up approach, starting from the long term unsecured corporate rating of the Issuer. Based on GCR’s estimated recovery calculations, the Bondholders can expect ‘Excellent’ recovery prospects. Although the transaction documents made provisions for perfecting the security package in an event of default, the bondholders can only recover the value stamped and registered with the government authorities. The prolonged security perfection process in Nigeria is also a rating constraint. As such, a two-notch uplift is considered appropriate for the Secured Bonds.
The final rating is contingent on the proper execution of the security documents in favour of the Bondholders. A downgrade in the rating of the Issuer could impact the final rating to be accorded.
NATIONAL SCALE RATINGS HISTORY
Initial/new rating (December 2020)
Senior Secured Bonds: A-(NG)
Rating outlook: Stable
Last rating: n/a
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated February 2018,
Global Structurally Enhanced Corporate Bonds Rating Criteria (November 2018),
Lekki Gardens Estate Limited rating report (November 2020)
Glossary of terms/ratios, February 2018.
RATING LIMITATIONS AND DISCLAIMERS
SALIENT FEATURES 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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the indicative rating expires in May 2021.
The Issuer, the transaction sponsor and the financial advisers participated in the rating process via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating have been disclosed to the Issuer.
The information received from the Issuer, the lead Issuing House and other reliable third parties to accord the Bond rating included:
- Draft Placement Memorandum
- Draft Trust Deed
- Draft Security Trust Deed
- Draft Deed of Legal Mortgage
- Draft Deed of Tripartite Legal Mortgage
- Legal Opinion from Banwo & Ighodalo
- Draft Memorandum of Deposit of Title Deed
- Draft Tripartite Memorandum of Deposit of Title Deed
The rating above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.