Announcements Financial Institutions Rating Alerts

GCR Affirms FCMB Financing SPV Plc’s Series 1, Series 2 and Series 3 Bonds Ratings with a Negative Outlook is now live.

Lagos Nigeria, 16 September 2020 – Global Credit Ratings has affirmed the national scale credit ratings assigned to FCMB Financing SPV Plc’s Series 1 and Series 3 Bonds of BBB-(NG), and Series 2 Bonds of BBB+(NG), under the N100bn Debt Issuance Programme. The outlook is accorded as Negative. The ratings are valid until August 2021.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to FCMB Financing SPV Plc’s (“the Issuer”) Series 1, Series 2 and Series 3 Bonds based on the following key criteria:

The Series 1, Series 2 and Series 3 Bonds (“the Bonds”) were issued under the Issuer’s N100bn Debt Issuance Programme (“DIP”). The Bonds under the DIP were issued in November 2014, November 2015 and December 2016 respectively, with an aggregate sum of N54.29bn.

While the Issuer is FCMB Financing SPV Plc, repayment of the obligations under the Issues ultimately depends on the performance of First City Monument Bank Limited (“FCMB”, “the bank”, “the Sponsor”), as the direct obligor of the Issues. The Sponsor irrevocably and unconditionally undertakes to the Trustees the due and punctual payment of the Issuer’s financial obligations under the Issues. As such, the accorded ratings are linked to FCMB’s credit standing and financial position

Improvement in profitability metrics in FY19 was mainly supported by decline in operating expenses, a fallout from the write-back of N6.2bn provision made for litigation in previous years. Notwithstanding the increase in business volumes during the year, net interest income declined by 4.4% to N65.4bn and resulted in net interest margin shrinkage to 7.6% (FY18: 8.7%). Also, a decline in FX gains during the year impacted non-interest income. Accordingly, total operating income registered a 6.3% decline to N94.9bn during the year. Nevertheless, a pre-tax profit of N14.8bn was recorded for FY19, representing a 4% increase from the previous year. Unaudited results as at 30 June 2020 reflects a pre-tax profit of N7.9bn, which outperforms budget on an annualised basis.

The rating accorded to each Series reflects the nature (Senior or Subordinated) of the FCMB Bonds purchased with the proceeds of the particular Series. The Subordinated Bonds and Senior Bonds (issued by FCMB) are backed by an irrevocable and unconditional undertaking by the bank, which effectively guarantees the timely honouring of all its obligations under the Issues.

According to the periodic performance report provided by the respective Trustees to the Bondholders, in the period to 10 August 2020, the Issuer has been meeting all its obligations under the Series 1, Series 2 and Series 3 Bonds on a timely basis.

The accorded ratings would be sensitive to a positive rating action on the Sponsor. Non-compliance with the set covenants, as well as a downgrade in the Sponsor’s rating could trigger negative rating actions on the Bonds.

NATIONAL SCALE RATINGS HISTORY

Series 1
Initial rating (March 2015)
Long-term: BBB(NG); Stable Outlook
Last rating (September 2019)
Long-term: BBB-(NG); Stable Outlook
Series 2
Initial rating (February 2016)
Long-term: A-(NG); Stable Outlook
Last rating (September 2019)
Long-term: BBB+(NG); Stable Outlook
Series 3
Initial rating (February 2017)
Long-term: BBB(NG); Stable Outlook
Last rating (September 2019)
Long-term: BBB-(NG); Stable Outlook

ANALYTICAL CONTACT

Primary Analyst

Adeyinka Olowofela

Senior Analyst

yinka@gcrratings.com

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017

Global Structurally Enhanced Corporate Bonds Criteria, updated November 2018

Sponsor’s rating report (2020)

Glossary of Terms/Ratios (February 2016)

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