Johannesburg, 3 May 2019 – GCR Ratings has affirmed the final, public short-term credit rating of ‘A1(ZA)(sf)’ accorded to the notes (the “Notes”) issued by iNkotha Investments (RF) Limited (“iNkotha” or the “Issuer”) from time to time under the Issuer’s R10bn domestic call bond fund programme Program (the “Programme”). Concurrently, GCR has withdrawn the final, public short-term senior unsecured credit rating accorded to the Issuer. The unsecured credit rating is no longer required given the absence of such debt.
The affirmation of the rating of the Notes follows from the ongoing monitoring and review of the transaction from January 2018 to March 2019 (the “period under review”). During the period under review, GCR published updates to its Global Master Structured Finance Rating Criteria in September 2018, as well as its Global Asset Backed Commercial Paper Rating Criteria in November 2018. The review of the rating accorded to the Notes issued by iNkotha was carried out in accordance with the updated rating criteria mentioned above. The final rating accorded to the Notes relates to timely payment of interest and principal.
SUMMARY RATING RATIONALE
GCR Ratings (“GCR”) has accorded the above credit rating to iNkotha Investments (RF) Limited based on the following key factors:
The Issuer is a Rand Merchant Bank (“RMB”) managed structured funding vehicle that advances rand denominated overnight call loans to South African corporates and South African subsidiaries/branches of international corporates (the “Obligors”). All the Obligors have long-term and short-term ratings assigned by GCR or any other recognised credit rating agency, which are reviewed at least once on an annual basis. The duration of the assets as well as that of the Notes is effectively matched as one day and therefore, there is no requirement for a liquidity facility or additional credit enhancement. To ensure that the credit quality of the portfolio is maintained at a level commensurate with the short-term rating, iNkotha will only advance call loans/bonds to obligors that have a minimum credit rating of ‘A-(ZA)’.
As part of its ongoing monitoring of the performance of the transaction, GCR is provided with monthly investor reports and runs the rating factor model to assess the Weighted Average Credit Rating (“WACR”) of the portfolio on a monthly basis. The Administrator is responsible for maintaining a well-diversified portfolio, with maximum concentration to a single obligor limited to 33%. GCR noted that this concentration limit was reported in breach in the months of June, July, August and November 2018. This was noted to be the result of significant cash movements around the above-mentioned reporting dates. However, GCR was advised by the Administrator that in each case the breach was rectified subsequent to the publishing of the investor report. The WACR has been maintained at a level commensurate with a short-term rating of ‘A1(ZA)’ since transaction closing.
For more information on the Program, please refer to the iNkotha Investments (RF) Limited New Rating Report published in November 2010, as well as the Surveillance Report to be published by April 2019. GCR analysed the Program by applying its Global Master Structured Finance Rating Criteria (Sep’18); Global Asset Backed Commercial Paper Rating Criteria (Nov’18); with reference to its Global Master Criteria for Rating Banks and Other Financial Institutions (Mar’17); Global Master Criteria for Rating Corporate Entities (Feb’18) and its FirstRand Bank Limited Rating Report (Nov’18).
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating: November 2010|
|Short Term Rating: A1(ZA)(sf)|
|Last rating: December 2017|
|Short Term Rating: A1(ZA)(sf)|
|Structured Finance Analyst|
|Senior Structured Finance Analyst|
|Sector Head: Structured Finance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
- Global Master Structured Finance Rating Criteria (Sep’18);
- Global Asset Backed Commercial Paper Rating Criteria (Nov’18);
- Global Master Criteria for Rating Banks and Other Financial Institutions (Mar’17);
- Global Master Criteria for Rating Corporate Entities (Feb’18)
- FirstRand Bank Limited Rating Report (Dec’18);
- iNkotha Investments (RF) Limited New Issuance Report (Nov’10); and
- iNkotha Investments (RF) Limited Surveillance Report (Dec’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 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.
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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
iNkotha Investments (RF) 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 rating has been disclosed to iNkotha Investments (RF) Limited.
The information received from iNkotha Investments (RF) Limited and other reliable third parties to accord the credit rating included:
- Updated legal opinion dated February 2019; and
- Monthly investor reports from April 2010 to March 2019;
The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY
|Administrator||A transaction appointed agent responsible for the managing of a Conduit or a Special Purpose Vehicle. The responsibilities may include maintaining the bank accounts, making payments and monitoring the transaction performance.|
|Asset||An item with economic value that an entity owns or controls.|
|Collateral||An asset pledged as security in event of default.|
|Commercial Paper||A debt security of short term nature, less than a year.|
|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 Enhancement||Limited protection to a transaction against losses arising from the assets. The credit enhancement can be either internal or external. Internal credit enhancement may include: Subordination; over-collateralisation; excess spread; security package; arrears reserve; reserve fund and hedging. External credit enhancement may include: Guarantees; Letters of Credit and hedging.|
|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.|
|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.|
|Early Redemption||The repurchase of a bond by the issuer before it matures.|
|Eligibility Criteria||Limitations imposed on the type and quality of assets that can be sold by the Originator / Servicer into the Securitisation vehicle which ensure the transaction will track the performance of historical data analysed as closely as possible.|
|Hybrid||A form of security that has characteristics of various types of transaction or product.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Liquidity||The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.|
|Liquidity Facility||A facility provided to a structured finance transaction that will pay the Noteholders interest in the event that the underlying assets cash flows are inadequate.|
|Loan||A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.|
|Noteholder||Investor of capital market securities.|
|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.|
|Rated Securities||Debt securities that have been accorded a credit rating.|
|Redemption||The repurchase of a bond at maturity by the issuer.|
|Securities||Various instruments used in the capital market to raise funds.|
|Senior||A security that has a higher repayment priority than junior securities.|
|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.|
|Structured Finance||A method of raising funds in the capital markets. A Structured Finance transaction is established to accomplish certain funding objectives whist reducing risk.|
|Surveillance||Process of monitoring a transaction according to triggers, covenants and key performance indicators.|
|Transaction||A transaction that enables an Issuer to issue debt securities in the capital markets. A debt issuance programme that allows an Issuer the continued and flexible issuance of several types of securities in accordance with the programme terms and conditions.|
For a detailed glossary of terms please click here