Announcements Corporate Rating Alerts

GCR Affirms C&I Leasing Plc’s rating of BBB(NG); Outlook Negative

Lagos Nigeria, 15 January 2021 — Global Credit Ratings has affirmed the national scale ratings assigned to C&I Leasing Plc of BBB(NG) and A3(NG) in the long term and short term respectively, with the outlook accorded as Negative. The ratings are valid until October 2021.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to C&I Leasing Plc (“C&I” or “the Group”) based on the following key criteria:

The ratings take into consideration C&I Leasing Plc’s (“C&I” or “the Group”) entrenched brand in the equipment leasing and logistics sector, as well as the relative stability of revenue (underpinned by rapid business growth and expansion). However, of major concern is the high level of leverage and significant liquidity pressure displayed at FY19 and 1H FY20.

The rating was placed on ‘Negative Outlook’ as the impact of the COVID-19 pandemic on operations across the Group is considered significant (given its business focus on transportation and logistics). Also, a sizeable portion of C&I’s clientele base operate in the susceptible oil and gas sector. However, long-term business growth potential for the sector is considered strong.

Revenue grew consistently throughout the five years of review, displaying a compound annual growth rate of 21.8% in FY19. Growth has been largely driven by business expansion and strategic alliance opportunities undertaken across the Group between FY15 and FY18. While management had expected revenue growth to be sustained over the short medium-term, current year revenue has been impacted by movement restrictions across the globe due to the COVID-19 pandemic. In as much as the decline in revenue is likely to be sustained for the rest of FY20, this is expected to improve in the medium to long-term. While pre-tax profit declined year-on-year by 34.2% in FY19 and by annualised 25.2% at 1H FY20, in the interim, management has embarked on cost curtailment initiatives to contain profitability pressures.

Sourcing of long-term funding remains a major challenge across the sector and for the Group in particular. As such, the Group financed a substantial portion of its business expansion through short-term debt, which could further strain the liquidity position. Resultantly, operating cash flow coverage of debt stood at 5.6%, which is considered low. Positively, C&I is currently in the process of raising up to N10bn, via issuance of bonds, to refinance some of the short-term debts and ease liquidity pressure.

Gearing metrics remain elevated, as net debt to EBITDA is sustained at 356% at 1H FY20 (FY19: 339%) and likely to remain within current range in the short-term. However, the fact that management does not plan for any major capex for the next three years is expected to see gearing metrics slowly tapper down over the medium term.

C&I has grown its capital base over the review period through a combination of retained earnings and capital raises. Accordingly, the capital adequacy ratio improved to 22% at 1H FY20 (FY19: 20%, FY18: 18%), following an additional capital injection through rights Issue of N2.3bn during the period. Furthermore, a loan stock of about N2bn is expected to be converted to equity before the end of FY20.

Ability of the Group to successfully raise longer tenored fund such that funding profile and gearing metrics improves significantly. Also, an improvement in profitability over the medium-term which results in firmer credit protection metrics could give rise to rating uplift. However, further deterioration in profitability and liquidity metrics, such that weakens operating cash flow and/or interest rate coverage, could result in rating downgrade.

NATIONAL SCALE RATINGS HISTORY

Initial rating (June 2006)

Long-term: BBB(NG)

Short-term: A3(NG)

Rating outlook: Stable

Last rating (February 2020)

Long-term: BBB(NG)

Short-term: A3(NG)

Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst

Funmilayo Abdulrahman

Senior Analyst

funmilayo@gcrratings.com

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Corporate Finance and Leasing Companies, updated March 2017

Global Master Criteria for Rating Corporate Entities, updated February 2018

C&I rating reports (2006-20)

Glossary of Terms/Ratios, February 2017

RATING LIMITATIONS AND DISCLAIMERS

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://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. 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 AT WWW.GLOBALRATINGS.COM.NG

SALIENT FEATURES 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; 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 ratings were solicited by, or on behalf of, C&I Leasing Plc, and therefore, GCR has been compensated for the provision of the ratings.

C&I Leasing Plc participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to C&I Leasing Plc.

The information received from C&I Leasing Plc and other reliable third parties to accord the credit ratings included:

  • the latest audited annual financial statements at 31 December 2019 (plus four years of comparative numbers);
  • latest internal and/or external auditor’s report to management;
  • full year detailed budget for 2020;
  • Management accounts to 30 June 2020; and
  • Information specific to the rated entity and/or industry.
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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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