Announcements

GCR affirms KenolKobil Limited’s rating of A(KE); Outlook Stable

Johannesburg, 05 Jun 2015 — Global Credit Ratings has today affirmed the national scale ratings assigned to KenolKobil Limited of A(KE) and A1(KE) in the long term and short term respectively; with the outlook accorded as Stable. Concurrently a Commercial Paper rating of A1(KE) has also been accorded. The rating(s) are valid until 06/2016.

SUMMARY RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) to KenolKobil Limited (KenolKobil”) based on the following key criteria:

KenolKobi is a leading East African oil marketer, with its position underpinned by a highly visible brand, extensive distribution network and a sizeable balance sheet that enables the group to secure ample trade financing to fund its working capital intensive operations.

Since the substantial loss reported in F12, KenolKobil has made significant progress in realigning its business mix by exiting high volume low margin business segments in favour of more profitable ones. This has been evidenced by the strong growth in the gross margin to 5.5% in F14 (F12: 2.2%). The financial benefits of the retrenchments undertaken in F13 were also clearly evidenced in F14, whilst tight cost controls across the group are being implemented. In addition, the interest charge reduced by 22% in F14 further bolstering profitability. Thus, operating profit rose by 80% to KES3.8bn, and NPBT almost 3-fold to KES1.5bn. Management expect further margin enhancement in F15, while an estimated interest saving of around KES400m will also contribute further to strong earnings growth.

Attesting to the lower business risk, the real value of changes in working capital items have been relatively low over the last two years, compared to extreme fluctuations over the F11/F12 period. Nevertheless, some volatility is inherent to the business due to the uncertain timing of fuel cargos and creditor payments.

Strong cash generation since F13, combined with lower capex spend has seen gross debt decrease from KES18.9bn at FYE11 to KES10.5bn at FYE14. With all available cash being used to settle debt, gross debt is expected to be around KES6bn at FYE15. Thus, while net gearing and net debt to EBITDA decreased to 146% and 228% respectively at FYE14, metrics should be much lower at FYE15. The composition of funding is also being closely managed, with expensive facilities having been repaid and more favourable terms negotiated with banking partners. To reduce currency risks, all domestic debt requirements will now be met using local currency facilities.

Market conditions are currently positive, with rising fuel consumption in Kenya and the wider region, driven by robust economic growth and an expanding middle class. In addition, the 60% drop in global crude oil prices is likely to favour KenolKobil, as it drives demand and lowers the funding requirement.

Given that KenolKobil’s commercial paper is a senior unsecured obligation on the group, with a duration of less than 12 months, its rating is equivalent to the short term corporate rating.

Positive rating action will be dependent on sustained growth in profitability, driven by rising volumes and firmer margins. In addition, moderate working capital movements, leading to strong cash generation, would evidence a lower risk profile and allow KenolKobil to minimise debt utilisation. Conversely, an excessive increase in debt due, inter alia, to higher inventories, weaker cash flows or poor earnings could lead to negative rating action. In this regard, operations remain susceptible to commodity price and exchange volatility, as well as a weaker economic growth.

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (November 2004)    
Long term: AA-(KE); Short term: A1+(KE)    
Outlook: stable    
     
Last rating (July 2014)    
Long term: A(KE); Short term: A1(KE)    
Outlook: Negative    
     

ANALYTICAL CONTACTS

Primary Analyst    
Eyal Shevel    
Sector Head: Corporate & Public Sector Debt Ratings    
(011) 784-1771    
Shevel@globalratings.net    
     
Committee Chairperson    
Patricia Zvarayi    
Senior Analyst    
(011) 784-1771    
patricia@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Corporate Entities, update February 2015

KenolKobil Rating reports (2004-2014)

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S CORPORATE GLOSSARY

Balance Sheet Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.
capital The sum of money that is invested to generate proceeds.
Capital Intensive A project, a business or a production process is said to be capital intensive if it uses large amounts of assets to produce goods or services. Examples are oil refineries, and airlines. Projects/businesses can be either fixed capital intensive or working capital intensive or a combination.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Commercial Paper Commercial paper is a negotiable instrument with a maturity of less than one year. 
Commodity Raw materials used in manufacturing industries or in the production of foodstuffs. These include metals, oil, grains and cereals, soft commodities such as sugar, cocoa, coffee and tea, as well as vegetable oils. 
Corporate Governance Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.
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 Rating Agency An entity that provides credit rating services.
Credit Risk The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.
Currency Risk The potential for losses arising from adverse movements in exchange rates.
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.
Default Failure to meet the payment obligation of either interest or principal on a debt or bond. Technically, a borrower does not default, the initiative comes from the lender who declares that the borrower is in default.
EBITDA EBITDA is useful for comparing the income of companies with different asset structures. EBITDA is usually closely aligned to cash generated by operations.
Exchange Rate The value of one country’s currency expressed in terms of another.
Fix The setting of a currency or commodity price for trade at a future date.
Fixed Capital Fixed capital is the part of a company’s total capital that is invested in fixed assets such as land, buildings and equipment that remains on the balance sheet, usually for years, but for at least one accounting period.
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.
Interest Rate The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.
LC An LC is a guarantee by a bank on behalf of a corporate customer that payment will be made if that entity cannot to meet its obligations.
leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Liabilities All financial claims, debts or potential losses incurred by an individual or an organisation.
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. 
Liquidity Risk The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.
Margin A term whose meaning depends on the context. In the widest sense, it means the difference between two values.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
National Scale Rating The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
Operating Profit Profits from a company’s ordinary revenue-producing activities, calculated before taxes and interest costs.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
REPO In a REPO one party sells assets or securities to another and agrees to repurchase them later at a set price on a specified date.
risk The possibility that an investment or venture will make a loss or not make the returns expected. There are many different types of risk including basis risk, country risk, credit risk, currency risk, economic risk, inflation risk, liquidity risk, market or systemic risk, political risk, settlement risk and translation risk.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
Working Capital Working capital usually refers to the resources that a company uses to finance day-to-day operations. Changes in working capital are assessed to explain movements in debt and cash balances.

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.

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.

KenolKobil 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/s has been disclosed to KenolKobil Limited with no contestation of the rating.

The information received from KenolKobil Limited and other reliable third parties to accord the credit rating(s) included;

  • Audited financial results of Company per 31 December 2014
  • Four years prior audited financial statements
  • Year-to-date accounts for 1Q 2015
  • Latest internal and/or external report to management
  • Corporate governance and enterprise risk framework
  • Industry comparative data

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.

image_pdfPDF View

Leave a Reply



ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.