Announcements

GCR accords final, public ratings to Global Equity Investments 11-14 Limited

Johannesburg, 22 September 2017 — Global Credit Ratings (“GCR”) has accorded final, public long-term international scale foreign currency credit ratings and rating outlooks to the following Primary Investment Vehicles (“PIVs”) trading as Global Equity Investments (“GEI”) 11-14 Limited:

Issuer
Underlying Linked Credit
Amount
Long-term international

foreign currency rating
Rating outlook
Global Equity Investments 11 Limited
Impala Bond – MTN Group Ltd
R15m
BB+(sf)
Negative
Global Equity Investments 12 Limited Impala Bond – Raiffeisen Bank International AG
R15m
BBB+(sf)
Stable
Global Equity Investments 13 Limited
Impala Bond – Unicredit S.p.A
R15m
BBB(sf)
Stable
Global Equity Investments 14 Limited
Impala Bond – Commerzbank AG (CBK)
R15m
BBB+(sf)
Stable

RATING RATIONALE

The Issuer will issue Rand denominated redeemable shares (the “PIV Shares”) to a specific institutional investor (the “CIS Client” or “PIV Shareholder”) in South Africa, on a private basis. The proceeds from each tranche of the PIV Shares issued will be utilised to subscribe to redeemable equity shares (the “Cell Shares”) issued by a constituent cell of a protected cell company, Global Equity Investments PCC (each a “Cell” and the “Protected Cell Issuer” respectively), incorporated in Mauritius with a Category I Global Business Licence. The Protected Cell Issuer will in turn use the proceeds of the subscription in the Cell Shares to invest in a range of rated global investment opportunities (the “Cell Investments”), with the primary objective of preserving capital, while providing consistent superior risk adjusted returns to investors, subject to investor appetite.

The proceeds from the issuance of the PIV Shares were used to subscribe to Cell Shares which in turn are invested in the Cell Investments. The Cell Investments may comprise either a Structured Deposit from Investec Bank Plc or an Impala Bond from Investec Bank Plc, aligned to the CIS Client’s credit risk appetite. Any profits realised by the Cell pursuant to the Cell Investments are to be distributed as dividends to the PIV Shareholders of each Cell. Profits of any Cell will be equal to any revenue received from the Cell Investments, less the agreed fees and statutory taxes payable.

The Cell will in turn grant the CIS Client a Put Option whereby the CIS Client can put the PIV Shares to the Cell for its capital value plus any declared but unpaid dividends. As security for this payment obligation, the Cell will grant the CIS Client an English law charge over its cash accounts and/or custody accounts held in the name of the Cell. Therefore, the CIS Client would ultimately bear the credit risk of the assets held in the accounts in the event that the Cell fails to perform under the Put Option.

Should a default event occur as described in the terms and conditions of the PIV Shares, the CIS Client can exercise its irrevocable and unconditional Put Option in their favour, thereby allowing the CIS Client/PIV Shareholder to sell its shareholding in the PIV Shares to the respective Cell. The price payable for the PIV Shares in respect of which the Put Option will be exercised shall be the aggregate Principal Amount plus any declared but unpaid dividends in respect of those shares.

Therefore, the PIV Shareholder/CIS Client will rely on the Put Option which is in turn secured by the Deed of Charge, which allows for direct recourse to the underlying assets of the relevant Cell held in that Cell’s cash and custody accounts in order to secure timely payment of accrued dividends and principal on the PIV Shares, thereby intrinsically linking the credit risk of the Cell Investments to the credit risk of the PIV Shares Issuer. The rating on the PIV Share Issuer can thus be credit linked to the credit rating of the underlying linked credit.

The underlying entity or underlying linked credit for the above listed Issuers are rated entities, with ratings accorded by at least one of the larger international rating agencies or GCR. GCR applied its rating mapping approach to determine the intrinsically linked credit risk and thus, the ratings to be accorded to the ZAR Denominated Redeemable Ordinary Share Issuers that are listed above. GCR has received updated legal opinions for all jurisdictions involved namely, England, Mauritius and Singapore, which were in turn reviewed by Norton Rose Fulbright UK. GCR also reviewed the Tax Opinion on the structure, which was prepared by Norton Rose Fulbright South Africa and reviewed by Senior Tax Council. For more information, please read the GEI 1 Limited ZAR Denominated Redeemable Ordinary Share Issue – New Issuance Report, published on 30 November 2016, together with the GEI 11-14 Limited ZAR Denominated Redeemable Ordinary Share Issue – New Issuance Reports to be published on 15 September 2017.

The final, public credit ratings accorded to the Global Equity Investments 11-14 Limited PIVs relate to timely payment of any dividends accrued and principal.

RATINGS HISTORY

Issuer
Initial / Last rating
Long term rating

International Foreign Currency
Rating outlook
GEI 11
New
BB+(sf)
Negative
GEI 12
New
BBB+(sf)
Stable
GEI 13
New
BBB(sf)
Stable
GEI 14
New
BBB+(sf)
Stable

ANALYTICAL CONTACTS

Primary Analyst

Mark Vrdoljak

Senior Structured Finance Analyst

+27 11 784 1771

markvrd@globalratings.net

Secondary Analyst

Tinashe Mujuru

Structured Finance Analyst

+27 11 784 1771

tinashem@globalratings.net

Committee Chairperson

Yohan Assous

Sector Head: Structured Finance Ratings

+27 11 784 1771.

yohan@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Credit Linked Note and Repackaging Vehicle Rating Criteria – May ’17;

Global Master Structured Finance Rating Criteria – Feb ’17.

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/RATING-SCALES-DEFINITIONS. 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.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S “SECTOR” GLOSSARY

Agent An agreement where one party (agent) concludes a juristic act on behalf of the other (principal). The agent undertakes to perform a task or mandate on behalf of the principal.
Agreement A negotiated and usually legally enforceable understanding between two or more legally competent parties.
Arranger Usually an Investment bank that advises and constructs a transaction and acts as a conduit between the transaction parties: Client, Issuer, Credit Rating Agency, Investors, Legal Counsel and Servicers.
Asset An item with economic value that an entity owns or controls.
Bond A long term debt instrument issued by either: a company, institution or the government to raise funds.
Capital The sum of money that is used to generate proceeds.
Credit A contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Credit Rating Agency An entity that provides credit rating services.
Credit Risk The probability or likelihood that a borrower or issuer will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).
Debt An obligation to repay a sum of money.
Deed A legal document that is signed and delivered, especially one regarding the ownership of property or legal rights.
Default A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.
International Scale Rating LC International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
Investment Grade Credit ratings equal to or higher than ‘BBB-‘.
Irrevocable Not able to be changed, reversed, recovered and final.
Issuer The party indebted or the person making repayments for its borrowings.
Junior A security that has a lower repayment priority than senior securities.
Legal Opinion An opinion regarding the validity and enforceable of a transaction’s legal documents.
Liability All financial claims, debts or potential losses incurred by an individual or an organisation.
Liquidity The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.
Liquidity Risk The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.
Long-Term Rating A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.
Loss A tangible or intangible, financial or non-financial loss of economic value.
Market An assessment of the property value, with the value being compared to similar properties in the area.
Obligation The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.
Option Either a call or a put option. A call option gives the holder the right to buy assets at an agreed price on or before a particular date. A put option gives the holder the right to sell assets at an agreed price on or before a particular date.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
Private An issuance of securities without market participation, however, with a select few investors. Placed on a private basis and not in the open market.
Proceeds Funds from issuance of debt securities or sale of assets.
Provision An amount set aside for expected losses to be incurred by a creditor.
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).
Recourse A source of help in a difficult situation.
Repack Rearrangement of securities with the intent to be more attractive for investment. Junior tranches (that have a higher degree of default risk) of a securitisation transactions that have been repackaged into separate debt securities (according to their degree of risk) that utilise credit-enhancement techniques to mitigate the risk. A CDO is created to distribute the prepayment risk amongst different classes of Notes.
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.
Senior A security that has a higher repayment priority than junior securities.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
Short-Term Rating A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.
Structured Finance A method of raising funds in the capital markets. A Structured Finance transaction is established to accomplish certain funding objectives whist reducing risk.
Timely Payment The principal debt, interest, fees and expenses being repaid promptly in accordance with the contractual obligation.
Tranche In a structured finance, a slice or portion of debt securities offered that is structured or grouped to resemble the same degree of risk associated with the underlying asset or with a similar degree of risk. A junior tranche has a higher degree of default risk than a senior tranche.
Transaction A transaction that enables an Issuer to issue debt securities in the capital markets. A debt issuance programme that allows an Issuer the continued and flexible issuance of several types of securities in accordance with the programme terms and conditions.
Unconditional Not subject to any conditions.

For a detailed glossary of terms utilised in this report, please visit the GCR website here

SALIENT FEATURES OF INDICATIVE RATINGS ACCORDED

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The Arranger participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The ratings above were solicited by the Arranger of the Transaction; GCR has been compensated for the provision of the ratings.

The credit ratings have been disclosed to the Arranger with no contestation of the ratings.

The information received from the Arranger and other reliable third parties to accord the credit ratings included:

  • Daily Investment Reports received on a weekly basis.
  • Final signed Transaction documents.
  • Updated English, Mauritian and Singaporean legal opinions.
  • Tax opinion reviewed by South African senior counsel.
  • Applicable underlying linked credit ratings.
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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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