Lagos, Nigeria, 11 May 2021 – GCR Ratings (“GCR”) has assigned a national scale long term indicative rating of BBB+(NG)(IR) to Family Homes Sukuk Issuance Programme Plc’s proposed N10bn Series 1 Sukuk Issue.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|N10bn Series 1 Sukuk Issue||Long Term Issue||National||BBB+(NG)(IR)*||Stable Outlook|
*IR stands for Indicative Rating.
The Issuer, Family Homes Sukuk Issuance Programme Plc, is a special purpose vehicle owned and sponsored by Family Homes Funds Limited (“FHF”, “the Sponsor”) as a funding entity, solely for the purpose of raising finance for its Sponsor. GCR recently upgraded the Sponsor’s national scale long-term senior unsecured rating to 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.
The Issuer is in the process of registering a N30bn Sukuk Issuance Programme (“Programme”) with the Securities and Exchange Commission. An initial N10bn is expected to be raised through the Series 1 Sukuk Issue under the Programme. The Sukuk net proceeds will be utilised for the Sponsor’s business operations. Per the legal documentations, the Series 1 Sukuk Issue will have a tenor of seven years. In terms of ranking, the Sukuk will constitute direct, unconditional, senior, and unsecured obligations of the Issuer and at all times rank pari passu and without any preference among themselves.
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 such amounts as would be required to meet the Issuer’s obligations under the Series I Sukuk. 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.
The indicative rating assumes that the conditions in the Sukuk transaction documents will not change and will receive regulatory approval.
Given that the indicative 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 successful development of the Sponsor in line with its operating model, achievement of forecasts, as well as establishment of a strong financial track record. Conversely, a negative rating action may follow a weakened earnings generation capacity or a reduction in the likelihood of government support.
|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’s Nigeria Country Risk Score report, February 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.|
|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.|
|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:
- 2019 audited annual financial statement, and prior two years annual financial statements of the Sponsor.
- 9-month management accounts to 30 September 2020 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
- Series 1 Sukuk Pricing Supplement
- Series 1 Sukuk Trust Deed
- ISPOs from the participating States
- Counter ISPO from the Federal Ministry of Finance