Global Credit Ratings has accorded the above credit rating(s) on Curro Holdings Limited based on the following key criteria:
Curro Holdings Limited (“Curro”) is an established domestic private school operator, currently reporting a portfolio of 26 schools and over 20,500 learners. Although it has reported rapid growth since the equity investment of PSG Group and its subsequent listing, Curro’s operating and learnership models were developed in the decade prior to this. Growth is expected to continue, through the aggressive rollout of new schools, and to a lesser extent through acquisitions. Curro is segmented into three core brands (Curro, Meridian and Select), with the affordable Meridian schools ringfenced from the remainder in terms of financing. Curro’s operating model hinges on being able to construct and operate schools more efficiently than other private operators, while also mainly targeting the affordable private schooling market that has emerged together with South Africa’s growing middle class.
Curro’s growth has been strongly supported by the PSG Group, who have lent significant management expertise to the group and faciliated its corporatisation. More importantly, PSG Group and minority shareholders have injected significant equity capital into the business, as attested by the the equity issues since listing totalling over R1.4bn. This has enabled Curro to retain strong solvency and report moderate debt to equity since listing. However, debt relative to earnings and cash flows has been particularly high, as newly constructed schools take several years to reach adequate capacity utilisation. In this regard, schools typically report breakeven capacities of 25%-35%, and are strongly cash generative once fully occupied.
Notwithstanding the above, Curro has recently redeemed the majority of its outstanding debt, while future financing plans have been adjusted to improve the group’s credit risk profile. Specifically, debt will be raised as needed and will be structured with bullet maturities such that the capital repayment burden is negligible for the next three years. Nevertheless, the aggressive growth that is forecast will necessitate debt funding, which will see earnings-based gearing metrics remain elevated over the medium term. Positively, however, virtually all of the earnings supporting debt serviceability over the medium term derive from the portfolio of existing schools, which have continued to report improved capacity utilisation and profitability in the year to date.
GCR’s rating of Curro is premised on the ongoing support of PSG in terms of management oversight and financial support. An adverse change in this support would thus have a negative impact on Curro’s credit risk profile, and could impact the ratings accorded. Conversely, controlled growth and greater utilisation of existing schools would improve profitability and debt serviceability, thereby reducing funding requirements and improving Curro’s credit risk profile.
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The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
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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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Curro Holdings Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to and contested by Curro Holdings Limited and was amended following the provision of further material information by the entity.
The information received from Curro Holdings Ltd and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), latest internal and/or external reports to management, full year detailed budgeted financial statements, most recent year to date management accounts, corporate governance and enterprise risk framework, industry comparative data, and a breakdown of facilities available and related counterparties (amongst others).