Lagos, 17 February 2020—Global Credit Ratings has assigned an indicative national scale long term rating of BBB+(NG) to LAPO MFB SPV Plc’s Series 2 Bonds of up to N6bn, issued under LAPO MFB SPV Plc’s N20bn Debt Issuance Programme; with a Stable Outlook. The rating is valid until May 2020.
Global Credit Ratings has accorded the above indicative credit rating based on the following key criteria:
Notwithstanding that the Series 2 Bonds are being issued by LAPO MFB SPV Plc, repayment of the obligations under the Issue ultimately depends on the performance of LAPO Microfinance Bank Limited (“LAPO Mfb” or “the bank” or “the Sponsor”), as the direct obligor of the Issue. The Sponsor irrevocably and unconditionally undertakes to the Trustee the due and punctual payment in accordance with the Trust Deed of the principal of and interest on all Bonds and of any other amounts payable by the Issuer under the Trust Deed. Consequently, cognisance must be taken of LAPO Mfb’s credit profile.
The Sponsor’s exposure to liquidity risk is low, with its key liquidity metrics comparing favourably with regulatory requirement throughout the review period. Specifically, LAPO Mfb’s statutory liquidity ratio ranged from 26% to 53% throughout FY18 (ending the year at 28%), compared to the 20% statutory benchmark. The matching of the bank’s assets and liabilities maturities at FY18 showed good liquidity buffer across the within one year’s maturity bands, with liquidity buffer amounting to N12.6bn in the most critical less than three months maturity band. However, LAPO Mfb’s financial performance was constrained by revenue decline and uptick in both impairment charge and operating expenses in FY18. In particular, the extension of the Bank Verification Number requirement to the microfinance banks by Central Bank of Nigeria resulted in a slowdown in MFBs activities in the early part of FY18. Consequently, total operating income declined 3.8% to N26.3bn. Impairment charge and operating expenses grew by 4.5% and 2.3% respectively, eroding pre-tax profit to 72.3% of the FY17 level.
Cognisance has also been taken of the unsubordinated and unsecured nature of the Bonds to be issued to the Issuer by the Sponsor, which will rank at par with all senior unsecured indebtedness and the claims of depositors of the bank. Accordingly, the Series 2 Bonds have been accorded an indicative, public national scale long-term rating of BBB+(NG), in line with the Sponsor’s rating.
Timely honouring of the Issuer’s obligations under the Issue is dependent on the performance of the Sponsor. Hence, the accorded rating would be sensitive to a positive rating action on the Sponsor. Non-compliance with covenants, and/or a downgrade of the Sponsor’s rating, could trigger a negative rating action.
NATIONAL SCALE RATINGS HISTORY
Initial/ last rating* (November 2019)
Long term: BBB+(NG)
Rating outlook: Stable
+23 41 904 9462-3
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Global Criteria for Rating Microfinance Institutions, updated march 2017
LAPO Mfb rating report, 2019
Glossary of Terms/Ratios (February 2016)
RATING LIMITATIONS AND DISCLAIMERS
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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; 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 12 months, or as indicated by the applicable credit rating document.
The rating was solicited by, or on behalf of, LAPO MFB SPV Plc, and therefore, GCR has been compensated for the provision of the rating.
LAPO Microfinance Bank Limited (the Sponsor) participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating was disclosed to and not contested by LAPO MFB SPV Plc and LAPO Microfinance Bank Limited.
The information received from LAPO MFB SPV Plc and LAPO Microfinance Bank Limited to accord the credit rating included the Sponsor’s 31 December 2018 audited annual financial statements (plus four years of comparative numbers), the unaudited management accounts of the Sponsor for nine month period (up to September 2019), Master Trust Deed for the Debt Issuance Programme, the Programme Shelf Prospectus, the Series 2 Bonds draft Trust Deed, the Series 2 Bonds draft Supplemental Shelf Prospectus, , as well as the Master Bonds Purchase Agreement.