Johannesburg, 10 March 2017 — Global Credit Ratings (“GCR”) has affirmed the final, public long term international scale foreign currency credit rating and rating outlook accorded to the Primary Investment Vehicles trading as Global Equity Investments 10 Limited (“GEI10”). The rating affirmation follows the issuance of an additional tranche of ordinary shares with the same underlying linked credit and the change in the Barclays Bank Plc rating by Moody’s. The current capital structure for GEI10 is shown below:
| Global Equity Investments 10 Limited | ||||
| Global Equity Investments 10 Limited |
RATING RATIONALE
The Issuer issued Rand denominated redeemable shares (the “PIV Shares”) to a specific institutional investor (the “CIS Client”) in South Africa, on a private basis. The proceeds from each tranche of the PIV Shares subscribed to were utilised to subscribe for redeemable equity shares (the “Cell Shares”) issued by a constituent cell of a protected cell company, Global Equity Investments PCC (each a “Cell” and the “Protected Cell Issuer” respectively), incorporated in Mauritius with a Category I Global Business License. The Protected Cell Issuer in turn used the proceeds of the subscription in the Cell Shares to invest in the Impala Bond Programme (the “Cell Investments”), with the primary objective of preserving capital while providing consistent superior risk adjusted returns to its investors, subject to investor appetite.
The PIV Shares were issued for a cash consideration on 29 November 2016 and on 20 February 2017 respectively. The proceeds of the PIV Shares were used to subscribe for Cell Shares, which in turn were invested in the Cell Investments which comprise of an Impala Bond from Investec Bank Plc with an underlying linked credit to Barclays Bank Plc. Any profits realised by the Cell pursuant to the Cell Investment are to be distributed as dividends to the PIV Shareholders of each Cell. Profits of any Cell will be equal to any revenue received from the Cell Investments, less the agreed fees and statutory taxes payable.
The Cell will in turn grant the CIS Client a Put Option whereby the CIS Client can put the PIV Shares to the Cell for its capital value plus any declared but unpaid dividends. As security for this payment obligation, the Cell will grant the CIS Client an English law charge over its cash accounts and/or custody accounts held in the name of the Cell. Therefore, the CIS Client would ultimately bear the credit risk of the assets held in the accounts in the event that the Cell fails to perform under the Put Option.
In the event of a default event as described in the terms and conditions of the PIV Shares, the CIS Client can exercise its irrevocable and unconditional Put Option in their favour allowing the CIS Client/PIV Shareholder to sell its shareholding in the PIV Shares to the respective Cell. The price payable for the PIV Shares in respect of which the Put Option will be exercised shall be the aggregate Principal Amount plus any declared but unpaid dividends in respect of those shares.
Therefore, the PIV Shareholder/CIS Client will rely on the Put Option which is in turn secured by the Deed of Charge which allows for direct recourse to the underlying assets of the relevant Cell held in its cash and custody accounts in order to secure timely payment of accrued dividends and principal on the PIV Shares thereby intrinsically linking the credit risk of the Underlying Linked Credit to the credit risk of the PIV Shares. The rating on the PIV Shares can thus be credit linked to the credit rating of the Underlying Linked Credit.
The underlying entity or underlying linked credit listed above is an investment grade rated entity, rated ‘A-‘ with a negative outlook by S&P Global Ratings, ‘A1’ with a negative outlook by Moody’s (upgraded in Dec ’16) and ‘A’ with a stable outlook by Fitch Ratings. GCR applied its rating mapping approach to determine the intrinsically linked credit risk and thus, the rating to be accorded to the ZAR Denominated Redeemable Ordinary Shares listed above. For more information, please read the Global Equity Investments 1-10 Limited ZAR Denominated Redeemable Ordinary Share(s) New-Issuance Report(s) published on 30 November 2016 and the GEI10 New Issuance Report to be issued on 10 March 2017.
The final, public credit ratings accorded to the Global Equity Investments 10 Primary Investment Vehicles’ ZAR Denominated Redeemable Ordinary Shares relates to timely payment of any dividends accrued and principal.
RATING HISTORY
ANALYTICAL CONTACTS
Primary Analyst
Mark Vrdoljak
Senior Credit Analyst
+27 11 784 1771
markvrd@globalratings.net
Secondary Analyst
Tinashe Mujuru
Junior Analyst
+27 11 784 1771
tinashem@globalratings.net
Committee Chairperson
Emma-Jane Fulcher
Sector Head: Structured Finance Ratings
+27 11 784 1771.
fulcher@globalratings.net
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Credit Linked Note and Repackaging Vehicle Rating Criteria – May ’16 ;
Global Master Structured Finance Rating Criteria, updated Feb ’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/RATING-SCALES-DEFINITIONS. 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.
| Asset | An item with economic value that an entity owns or controls. |
| Bond | A long term debt instrument issued by either: a company, institution or the government to raise funds. |
| Capital | The sum of money that is used to generate proceeds. |
| Credit | A contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company |
| Credit Rating | An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories. |
| Credit Risk | The probability or likelihood that a borrower or issuer will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred). |
| Deed | A legal document that is signed and delivered, especially one regarding the ownership of property or legal rights. |
| Default | A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors. |
| International Scale Rating LC | International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions. |
| Investment Grade | Credit ratings equal to or higher than ‘BBB-‘. |
| Irrevocable | Not able to be changed, reversed, recovered and final. |
| Issuer | The party indebted or the person making repayments for its borrowings. |
| 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. |
| Obligation | The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform. |
| Option | Either a call or a put option. A call option gives the holder the right to buy assets at an agreed price on or before a particular date. A put option gives the holder the right to sell assets at an agreed price on or before a particular date. |
| Principal | The total amount borrowed or lent, e.g. the face value of a bond, excluding interest. |
| 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. |
| Proceeds | Funds from issuance of debt securities or sale of assets. |
| Rating Outlook | A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered). |
| Recourse | A source of help in a difficult situation. |
| Security | An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default. |
| Shareholder | An individual, entity or financial institution that holds shares or stock in an organisation or company. |
| 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. |
| Timely Payment | The principal debt, interest, fees and expenses being repaid promptly in accordance with the contractual obligation. |
| Tranche | In a structured finance, a slice or portion of debt securities offered that is structured or grouped to resemble the same degree of risk associated with the underlying asset or with a similar degree of risk. A junior tranche has a higher degree of default risk than a senior tranche. |
| Unconditional | Not subject to any conditions. |
For a detailed glossary of terms utilised in this announcement please click here
SALIENT FEATURES OF RATINGS ACCORDED
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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The Arranger, Tamaka Limited, participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The rating above was solicited by the Arranger of the Transaction; GCR has been compensated for the provision of the rating.
The credit rating has been disclosed to the Arranger with no contestation of the rating.
Information received from the Arranger
Final, signed copies of the following were received:
- Daily Investment Report received on a weekly basis.
- PIV Constitution.
- PIV Shares Offer Document.
- Terms and Conditions of the PIV Shares.
- PIV Share Subscription Form.
- PCC Constitution.
- PCC Shares Offer Document.
- Terms and Conditions of the PCC Shares.
- PCC Share Subscription Form.
- Deed of Charge over Investec Bank Plc Structured Deposit.
- Put Option Agreement.
- Paying Agency Agreement.
- ISDA Schedule.
- Custodian Agreement.
- Account Control Agreement.
- Singapore counsel legal opinion.
- London counsel legal opinion.
- Mauritian counsel legal opinion.
