Johannesburg, 27 July 2018 – Global Credit Ratings has today affirmed Centum Investment Company Plc’s national scale Issuer ratings of A(KE), and A1(KE) in the long term and short term respectively. The ratings have been accorded a Positive Outlook. The ratings are valid until 31 July 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Centum Investment Company Plc (“Centum”) based on the following key criteria:
Centum is an established Kenyan investment company, with clear operating structures and well-defined investment strategy. The ratings take cognisance of Centum’s sectoral diversification across its investments, which have supported consistently robust growth over the review period. NAV registered at KES48.7bn at FY18, having increased at a CAGR of 20.8% from FY14 to FY18.
Much of the value creation has largely been driven by the growth and real estate portfolios, with two more large property ventures expected to contribute strongly to realised and fair value profits over the next few years. Nevertheless, the projects’ prospects are closely related to the performance in the property market, which is under some pressure. The investments in power are set to substantially change the composition of portfolio in the medium term, while projects in the education and healthcare will further add to the diversity of earnings.
Centum has reported much stronger annuity income since FY16, supported by dividend inflows from the FMCG businesses. Thus, while the interest cost has increased over the review period, annuity income coverage of interest and operating expenses has been maintained around 1.4x, which is considered adequate given the earnings achieved through assets sales and the availability of substantial funding facilities.
Development risk is inherent to the business model. However, the company’s demonstrated ability to generate solid returns and cash flows from disposals (which form a critical component of Centum’s earnings), combined with the ability to maintain a firm development pipeline over the review period supports the current rating.
At the holding company level, Centum’s gross debt was flat at KES14.8bn at FY18 (FY17: KES14.7bn). Accordingly, gearing metrics remained conservative and well within bond covenant levels. Net debt to equity registered at 28.3% (FY16: 27.2%), whilst net debt to investment assets was 22.3% (FY17: 20.8%). The long debt maturity profile is positively noted, with only 13% of total debt due in FY19.
Centum’s strong access to capital markets, evidenced by oversubscribed recent bond issuances, as well as long-standing relationships with commercial banks and other financial institutions are also considered in support of the ratings. The company is well positioned to benefit from the current strong growth in Kenya and the broader East Africa region, as its investments are largely targeted at servicing the growing middle class. Nevertheless, it does face a more challenging outlook in most of its operating environments.
Global Credit Ratings has withdrawn the rating accorded to Centum Investment Company Plc’s Commercial Paper, as there is currently no Commercial Paper in issue.
Positive ratings action is dependent on continued strong profitability, both from annuity type income and asset sales. Gaining critical mass in other targeted sectors would be positively viewed, as it would lessen dependence on new property developments. Conversely, protracted weak performance due to a deterioration in the business and socio-economic environment would have a negative ratings impact. Adverse happenings in any of the subsidiaries/associates could be managed, but Centum’s ability to service its debt could be strained by simultaneous problems.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (July 2012)|
|Long term: A-(KE)|
|Short term: A1-(KE)|
|Rating outlook: Stable|
|Last rating (July 2017)|
|Long term: A (KE)|
|Short term: A1 (KE)|
|Rating outlook: Positive|
|Primary Analyst||Secondary Analyst|
|Eyal Shevel||Tavonga Muchemedzi|
|Sector Head: Corporate and Public Sector Ratings||Junior Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Analyst: Corporate Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated February 2018
Centum Investment Company Plc Issuer rating reports (2012-17)
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 Corporates GLOSSARY
|Bond||A long term debt instrument issued by either a company, institution or the government to raise funds.|
|Covenant||A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ 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.|
|Equity Ratio||A ratio that measures a company’s debt relative to its equity. Calculated by dividing long term debt by shareholders’ equity. GCR typically uses a tangible equity as the denominator, after stripping out goodwill and other intangible assets.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|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.|
|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.|
|Refinancing||The issue of new debt to replace maturing debt. New debt may be provided by existing or new lenders, with a new set of terms in place.|
|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.|
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 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 Plc 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 Plc, with no contestation of the ratings.
The information received from Centum Investment Company Plc and other reliable third parties to accord the credit ratings included:
- 2018 audited annual financial statements and four years prior comparative financial statements;
- Details of funding facilities;
- FY18 Investor briefings
The ratings above were solicited by, or on behalf of, the Centum Investment Company Plc, and therefore, GCR has been compensated for the provision of the ratings.
GCR affirms Centum Investment Company Plc’s rating of A(KE); Outlook Positive