Announcements Financial Institutions Rating Alerts

GCR affirms and subsequently withdraws National Housing Finance Corporation’s rating of A+(ZA).

Rating Action

Johannesburg, 15th November 2019 – GCR Ratings (‘GCR’) has affirmed the National Housing Finance Corporation Soc Limited’s (‘NHFC’) national scale issuer ratings of A+(ZA) and A1(ZA) in the long-term and short-term, respectively. At the same time, GCR has revised NHFC’s international scale long-term issuer rating from BB to BB- due to a change in the mapping methodology (see the Criteria for the GCR Ratings Framework). Subsequent to the above rating actions, all ratings have been withdrawn for analytical reasons.

Rated Entity / Issue

Rating class

Rating scale

Rating

Outlook / Watch

National Housing Finance Corporation Soc Limited

Issuer Long Term

National

A+(ZA)(WD)

Withdrawn

Issuer Short Term

National

A1(ZA)(WD)

Withdrawn

Issuer Long Term

International

BB-(WD)

Withdrawn

Rating Rationale

GCR has affirmed and subsequently withdrawn the national scale ratings on NHFC. NHFC merged with the National Urban Reconstruction and Housing Agency and the Rural Housing Loan Fund in October 2018, with NHFC being the new legal entity. The consolidated entity is currently undergoing post-merger integration and processes are currently underway to establish this entity into the Human Settlements Development Bank (‘HSDB’) within the next 12 months. The HSDB is expected to provide improved scale of delivery of affordable housing solutions, cost savings and improved efficiencies as well have the ability to raise long term funding.

At the time of withdrawal, the financial profile of the financial services company was broadly positive, balancing a strong capital position, stable funding and robust liquidity with fairly weak asset quality. At FY18, NHFC had a GCR leverage of around 70%. At the same time, cash and other liquid assets more than fully covered all interest-bearing liabilities. However, non-performing loans were high at 14.2% of the total loan book. The entity’s competitive position was a relative weakness due to its small size, monoline business and track-record versus other financial institutions and government owned development banks.

Analytical Contacts

Primary analyst

Nyasha Chikwengo

Financial Institutions Analyst

Johannesburg, ZA

nyashac@GCRratings.com

+27 11 784 1771

     

Committee chair

Matthew Pirnie

Sector Head: Financial Institutions Ratings

Johannesburg, ZA

matthewp@GCRratings.com

+27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019

Criteria for Rating Financial Institutions, May 2019

GCR Ratings Scale, Symbols & Definitions, May 2019

GCR Country Risk Scores, June 2019

GCR Financial Institutions Sector Risk Score, October 2019

GCR affirms National Housing Finance Corporation Soc Limited’s rating at A+(ZA); Rating Watch, November 2018

Ratings History

National Housing Finance Corporation Soc Limited

Rating class

Review

Rating scale

Rating class

Outlook/Watch

Date

Issuer Long Term

Initial

National

AA-(ZA)

Stable

February 2004

Last

National

A+(ZA)

Rating Watch

November 2018

Issuer Short Term

Initial

National

A1+(ZA)

n/a

February 2004

Last

National

A1(ZA)

n/a

November 2018

Issuer Long Term

Initial

International

BBB

Stable

November 2013

Last

International

BB

Rating Watch

November 2018

RISK SCORE SUMMARY

Risk score

 

 

 

Operating environment

13.5

Country risk score

7.5

Sector risk score

6.0

   

Business profile

-2.5

Competitive position

-2.5

Management and governance

0.0

 

 

Financial profile

3.5

Capital and Leverage

4.0

Risk

-2.0

Funding structure and Liquidity

1.5

   

Comparative profile

0

Group support

0

Government support

0

Peer analysis

0

Total Score

14.5

National Scale Rating

A+/A1

Glossary

Benefits

Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.

Capital

The sum of money that is invested to generate proceeds.

Financial Institution

An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.

Liquidity

The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price. 

Loan

A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.

Market

An assessment of the property value, with the value being compared to similar properties in the area.

National Scale Rating

National scale ratings measure creditworthiness relative to issuers and issues within one country.

Performing Loan

A loan is said to be performing if the borrower is paying the interest on it on a timely basis.

Performing

An obligation that performs according to its contractual obligations.

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.

Release

An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.

Risk Management

Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.

Risk

The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.

Short Term

Current; ordinarily less than one year.

Salient points of accorded ratings

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to National Housing Finance Corporation Soc Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

National Housing Finance Corporation Soc Limited participated in the rating process via written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from National Housing Finance Corporation Soc Limited and other reliable third parties to accord the credit rating included:

  • Audited financial results of National Housing Finance Corporation Soc Limited as at 31 March 2018;
  • Latest internal and/or external audit report to management;
  • A breakdown of facilities available and related counterparties; and
  • Industry comparative data.


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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.