Johannesburg, 15 Dec 2015 — Global Credit Ratings has today assigned a national scale manager quality* rating to CBZ Asset Management (Private) Limited of A(ZW)(mq); with the outlook accorded as Stable. The rating is valid until November 2016.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above manager quality rating to CBZ Asset Management (Private) Limited (“Datvest”, “the company”) based on the following key criteria:
Datvest is a well-established domestic brand with a 25 year track record and 6% market share of Zimbabwean Assets under Management (“AuM”) at 30 September 2015, making it the third largest asset manager in Zimbabwe out of a total of fifteen. The company is a wholly owned subsidiary of CBZ Holdings Limited (“the group”), the largest listed financial services group on the Zimbabwe Stock Exchange (“ZSE”). The company draws on a stable and experienced senior management team.
GCR considers Datvest’s financial standing to be comfortable in light of the support obtainable from shareholders and its well capitalised position, holding core capital of USD2.4m at FYE14, against a regulatory requirement of USD0.5m. Capital accumulation has historically been buoyed by sound earnings generation and retention, although the company registered a 58.1% annualised decline in pre-tax profits in 1H F15 due to a gradual increase in operating expenditure (mainly staff costs). Consequently, profitability and efficiency as measured by ROE and the cost to income ratio weakened to 2.8% and 95.5% respectively in 1H F15 (FYE14: 14.3% and 80%). GCR notes that the company will have to apply cost containment measures in order to post earnings that are close to historical levels.
The company implements a top-down investment approach that is monitored on a weekly basis by an executive committee. Security selection is primarily based on research driven fundamental valuations (focusing on value investments that are underpriced by the market and top tier companies), credit ratings of counterparties, and liquidity requirements of clients. This is supplemented by technical analysis, in particular, when optimising entry and exit opportunities on the equity side. AuM have been on a declining trend since 30 September 2014, and declined by 11.1% year-on-year to 30 September 2015, owing to negative returns from equity portfolio investments as a result of negative returns on the ZSE index.
Datvest benefits from the group’s operational risk control framework. It’s operational and IT environment provides efficient work flow, matching the fund’s needs. Investment decision making is highly disciplined, primarily driven by a risk model, with implementation by the portfolio management team under tight portfolio volatility control. Despite this, the company’s investment portfolios exhibit high counterparty concentration due to its selective investment criteria coupled with the challenging economic conditions (which have resulted in many company failures).
An improvement in the company’s market share, fund performance, portfolio diversification, and overall operating environment could lead to an upward movement in the rating. A negative rating action may arise from loss of market share/key clients, continued pressure on profitability, as well as a reduction in available support from the group (which supports the current rating).
*Note that manager quality ratings are classified as ‘non-credit ratings’ (refer to GCR’s published rating scales and definitions).
|NATIONAL SCALE RATINGS HISTORY|
|Initial/last rating (not applicable)|
|Management Quality rating: First/new|
|Rating outlook: First time/new|
|Primary Analyst||Committee Chairperson|
|Kuzivakwashe Murigo||Omega Collocott|
|Credit Analyst||Sector Head: Financial Institution Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Funds and Asset Managers, updated March 2015
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating 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.
CBZ Asset Management (Private) Limited participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The rating has been disclosed to CBZ Asset Management (Private) Limited with no contestation of the rating.
Information received from CBZ Asset Management (Private) Limited and other reliable third parties to accord the rating included;
- Audited financial results as at 31 December 2014 (and one year of comparative numbers)
- Unaudited interim results at 30 June 2015
- Asset allocation information from January 2012 to 30 September 2015
- Latest internal and/or external audit report to management
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
The rating above was solicited by, or on behalf of, CBZ Asset Management (Private) Limited, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Capital||The sum of money that is invested to generate proceeds.|
|Corporate Governance||Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due.|
|Creditworthiness||An assessment of a debtor’s ability to meet debt obligations.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, 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.|
|Equity||Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Exchange||A standardised marketplace in which different assets are traded.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Operational Risk||The risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. This includes legal risk, but excludes strategic risk and reputational risk.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Rating Outlook||A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Securities||Various instruments used in the capital market to raise funds.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Stock Exchange||A market with a trading-floor or a screen-based system where members buy and sell securities.|
GCR accords an initial rating of A(ZW)(mq) to CBZ Asset Management (Private) Ltd; Outlook Stable.