Announcements

GCR affirms Centum Investment Company Limited’s rating of A(KE), outlook Stable.

Johannesburg, 15 July 2016: Global Credit Ratings has today affirmed the national scale long term debt rating for Centum Investment Company Limited at A(KE), whilst the national scale short term debt rating has been affirmed at A1(KE). The ratings have been accorded a Stable Outlook. Concurrently, Centum Investment Company Limited’s Commercial Paper rating has also been affirmed at A1(KE). The ratings are valid until 07/2017.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Centum Investment Company Limited (“Centum”) based on the following key criteria:

Centum is an established and leading Kenyan investment company, with clear operating structures and a well-defined investment strategy. The strength of the management team and the company’s leading position in the East African corporate environment has been borne out in the substantial value enhancement over recent years, with NAV rising from KES14bn at FYE12 to KES39bn at FYE16. This has largely been driven by property sector investments and in particular the mark-to market valuation of the Two Rivers development. Nevertheless, the group has large operations in banking, asset management and Fast Moving Consumer Goods (FMCG), which offer strong earnings prospects, whilst investments in agriculture and education are at a nascent stage.

Although annuity type income more than doubled to KES3.4bn in F16 (F15: KES1.4bn), dividends and interest received from subsidiaries and associates remains a relatively small portion of the overall return. This reflects Centum’s strategic shift from passive investment management towards actively driving value creation in its investee companies. As a result, subsidiaries have retained earnings to facilitate expansion, with returns being generated from the substantial realised and unrealised gains on investments over the review period. Cumulative realised gains have amounted to KES8.1bn since F12, and KES15.1bn at group level, and strong realised gains are expected to be sustained as Centum’s main source of earnings on annual basis.

At the holding company level, Centum’s debt rose to KES10.5bn at FYE15 (FYE14: KES7.36bn), following a successful KES6bn 5-year bond issue. Nevertheless, despite increasing steadily over the review period, gearing metrics remain low, with gross debt to investment assets rising to 22% at FYE16 (FYE14: 20.1%), and net debt to investment assets to 13.8% (FYE15: 10.3%). Gross debt to equity was little changed (due to the higher equity value) at 26.5% at FYE16 (FYE15: 23.7%).

The low annuity income inherent to Centum’s business model does constrain the rating somewhat, but this is mitigated by the realised gains that have been reported annually in recent years and are central to Centum’s cash flow projections. Moreover, the company’s low gearing, marketable securities’ portfolio and access to liquidity (cash of KES3.9bn at FYE15 and KES2.3bn in unutilised debt facilities), suggest ample resources to redeem debt or to pursue investments.

Positive ratings action is dependent on recurring income growth from both the Two Rivers development and from other core investments in financial services and FMCG. Gaining critical mass in other targeted projects and sectors would lessen the dependence on property developments. Conversely, delays in major projects, together with unexpected cash requirements could strain Centum’s resources. Adverse developments in any of the subsidiaries/associates could be managed, but should problems simultaneously develop, this could strain Centum’s ability to service its debt.

NATIONAL SCALE RATINGS HISTORY  
Initial rating (July 2012)  
Long term: A-(KE), Short term: A1-(KE)  
Commercial paper: n.a)  
Rating outlook: Stable  
Last rating (July 2015)  
Long term: A (KE), Short term: A1 (KE)  
Commercial paper: A1 (KE)  
Rating outlook: Stable  

ANALYTICAL CONTACTS

Primary Analyst  
Eyal Shevel  
Sector Head: Corporate and Public Sector Ratings  
(011) 784-1771  
shevel@globalratings.net  
   
Committee Chairperson  
Sheri Few  
Senior Credit Analyst  
(011) 784-1771  
few@globalratings.net  

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Corporate Entities, updated February 2016

Centum rating reports (2012-2015)

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. 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 CORPORATE GLOSSARY

Bond A long term debt instrument issued by either a company, institution or the government to raise funds.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Dividend The portion of a company’s after-tax earnings that is distributed to shareholders.
Equity Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.
Gearing With regard to corporate analysis, gearing (or leverage) refers to the extent to which a company is funded by debt and can be calculated by dividing its debt by shareholders’ funds or by EBITDA.
Interest Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.
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. 
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.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.
Retained Earnings Earnings not paid out as dividends by a company. Retained earnings are typically reinvested back into the business and are an important component of shareholders’ equity.
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.
Unrealised Gain The profit or loss that would be made if a position were to be liquidated.

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 being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Centum Investment Company Limited 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 ratings have been disclosed to Centum Investment Company Limited with no contestation of the ratings.

The information received from Centum Investment Company Limited and other reliable third parties to accord the credit rating(s) included:

  • Audited financial results of Company per 31 March 2016
  • 4 years of comparative numbers
  • Investor presentations
  • Latest internal and/or external report to management
  • Corporate governance and enterprise risk framework

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

GCR affirms Centum Investment Company Limited’s rating of A(KE), outlook Stable.

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