Lagos Nigeria, 24 July 2020–Global Credit Ratings has accorded a final rating of BBB+(NG) to LAPO MFB SPV Plc N20bn Debt Issuance Programme; with the outlook accorded as Stable. The rating is valid until October 2020.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above final credit rating to LAPO MFB SPV Plc (“the Issuer”) N20bn Debt Issuance Programme (“DIP”) based on the following key criteria:
The Series 2 Bonds were issued under the Issuer’s N20bn DIP. The Issuer is permitted through a resolution of its Board of Directors (“board”) dated 26 September 2016, to issue the Bonds in tranches, different forms, and under different terms and conditions as the board may deem fit, subject to the approval of the relevant regulatory authorities. Accordingly, the Series 2 Bonds will constitute direct, unsubordinated and unsecured obligations of the Issuer.
The Series 2 Bonds are the second series under the Issuer’s DIP. The first series of Bonds (Series 1 Bonds) were issued in December 2017, with an aggregate sum of N3.15bn raised under the Issue. The final rating accorded to the Series 2 Bonds relate to ultimate payment of interest and principal (as opposed to timely, akin to an expected loss rating, which is a function of probability of default and loss severity).
Notwithstanding that the Series 2 Bonds were 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”, “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.
LAPO Mfb’s financial performance improved significantly in FY19, displaying a year-on-year 87.5% growth in pre-tax profit at N7.8bn. Net interest income grew by 14.8% to N29.9bn on the back of increase in loans and advances book. As such, despite a 32.9% reduction in other income, total operating income closed firmer with a 14% growth to N30.0bn. Also, a lower impairment charge of N277m (FY18: N1.7bn) and moderate 7.3% increase in operating expenses saw pre-tax profit to a new high, which is well above budget. Cost ratio reduced to 73.1% from 77.7% previously. Consequently, ROaE and ROaA improved to 27% and 7.3% respectively (FY18: 17% and 4.2%) in FY19.
Cognisance has also been taken of the unsubordinated and unsecured nature of the Bonds 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 a final, 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. However, 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)*
National scale rating: BBB+(NG)
Senior Credit Analyst
+234 1 904 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
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 a maximum of 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 2019 audited annual financial statements (plus four years of comparative numbers), Master Trust Deed for the Debt Issuance Programme, the Programme Shelf Prospectus, the Series 2 Bonds final Trust Deed, the Series 2 Bonds final Supplemental Shelf Prospectus, , as well as the Master Bonds Purchase Agreement.