Global Credit Ratings has accorded the above credit rating(s) on Nigerian Aviation Handling Company Plc based on the following key criteria:
Nigerian Aviation Handling Company Plc (“NAHCo” ) maintains a dominant position in the aviation service provision & cargo handling industry, servicing more than 30 passenger and cargo carriers across seven Nigerian airports. Operations are supported by group synergies and membership of international aviation associations. Its position has been further strengthened by the recent warehouse expansion project, which saw cargo handling capacity more than double to 230,000mtpa.
Substantial margin pressure was evidenced in F12 as air travel reduced significantly following an air crash and subsequent regulatory re-certification of domestic airlines. This was compounded by decreased margin headroom and rising fuel costs, which saw the operating margin fall to a review period low of 12.2% in F12 (F11: 17.0%). As a result, operating profit registered at N905m (F11: N1.2bn). While scale economies and operational efficiencies resulted in an improved operating margin of 17.4% in 1H F13, forecasts indicate that margins will remain under pressure and earnings relatively flat.
Gearing metrics have improved since FYE11 and are currently moderate, with net gearing at 19.2% at 1H F13 (FYE12: 24.6%) and net debt to EBITDA at 49.6% (FYE12: 83.1%). However, NAHCo intends raising gross debt to N5bn, which would see net gearing peak at 56% at FYE14 and net debt to EBITDA at 164%. Although budgets indicate a substantial reduction in gearing by FYE16, if the forecast earnings do not transpire, credit protection metrics could be impaired.
Favourable prospects for the aviation industry are underpinned by the Federal Government’s (“FG”) infrastructural drive and recent initiatives suggest strong opportunities for further growth. While the geographical expansion and business diversification strategy is noted, this heightens investment and capital risk.
The bonds are Senior Unsecured obligations of the Issuer. GCR has taken cognisance of the cash collection mechanism through the Debt Service Reserve Account. This offers some short term protection to bondholders, but would not prevent a default. Thus, the features are not sufficient to warrant a notching up from the Issuer rating.
An improvement in earnings margins and credit protection factors in line with budgets would likely lead to positive rating movement. The success of business diversification and geographical expansion initiatives would also enhance earnings in the medium term. Operations are, however, susceptible to vagaries of the operating environment and exogenous factors. Additional investment in new subsidiaries may also put pressure on profitability. Both factors could result in further earnings underperformance, leading to higher debt and a deterioration in credit protection metrics, which in turn would result in negative rating action.
|NATIONAL SCALE RATINGS HISTORY|
|Long term: A-(NG); Short term: A2(NG)|
|Long term: A-(NG); Short term: A2(NG)|
|Fixed rate bond Series 1: A-(NG)|
|+234 1 462 2545|
|Sector Head: Corporates|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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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.
Nigerian Aviation Handling 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 rating/s has been disclosed to Nigerian Aviation Handling Company Plc with no contestation of the rating.
The information received from Nigerian Aviation Handling Company Plc and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), internal and/or external management reports, full year budgeted financial statements, most recent year to date management accounts (where necessary), corporate governance and enterprise risk framework, industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties. In addition, information specific to the rated entity and/or industry was also received.