Johannesburg, 25 July 2014 — Global Credit Ratings has today affirmed the national scale long term and short term ratings assigned to PDM Holdings Limited of A-(KE) and A2(KE); with the outlooks accorded as Stables. The rating(s) are valid until July/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) to PDM Holdings Limited based on the following key criteria:
PDM is an affiliate of the Aga Khan Development Network (“AKDN”), in turn linking it to numerous high profile companies across the region. This provides a captured tenant base for its own properties, as well as a very large portfolio of properties to manage and optimise. PDM reports a core portfolio of A-grade prime-located properties, which support high tenant quality and a sound rental base. This property portfolio was valued at almost KShs4bn at FYE13, and is supplemented by the KShs246m Courtyard leasehold property. The group also reports equity stakes in listed AKDN affiliates (DTB and TPS Serena), as well as a share in the unlisted TPS (Dar es Salaam).
The property portfolio reports high concentration in terms of the number of properties and exposure to key tenants. While this is mitigated by the fact that many of the tenants are related parties and of high credit quality, the long term objective is to diversify the portfolio. Furthermore, PDM reports strong relations and ongoing dialogue with its tenants, and most leases reflect long-dated maturity profiles. The group plans to develop several properties over the medium term, much of which will be retained, but some of which will be sold. This is expected to see material growth of the rental portfolio, as well as the addition of development sales income in the three year period to FYE17. Developments are to be funded through a combination of equity, presales and debt, and this will increase financial leverage and introduce development risks into the business.
PDM has reported insignificant debt levels over the review period, with these amounting to just KShs4m at FYE13 and zero at 1Q F14. However, forecasts indicate that debt will rise substantially in F14 and F15, before receding sharply thereafter. Accordingly, gearing measures and debt serviceability are expected to rise substantially, and thereafter decrease sharply as for sale developments are commercialised.
Nonetheless, the domestic and regional economies are very sound at the moment, and strong economic growth is driving increased wealth levels and demand for property from both the residential and commercial elements of the private sector. GCR has, however, noted the substantial property development activity that is underway in the region, and adverse economic developments or shocks could result in substantial oversupply.
Looking forward, the planned debt raising and development activity will constrain the ratings in the short-medium term and limit the potential for an upgrade. Thereafter, the successful completion and commercialisation of development initiatives would markedly increase the portfolio size and revenue base. If accompanied by a return to low gearing and strong credit protection factors, this could precipitate positive ratings movement. In contrast, material delays and/or cost overruns relating to developments could impact earnings, cash flows and debt serviceability. To the extent that credit risk measures exceed budgeted levels, this could adversely impact the ratings.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Apr/2011)
Long term: A-(KE); Short term: A2(KE);
Last rating (Jul/2013)
Long term: A-(KE); Short term: A2(KE);
Sector Head: Corporate & Public Sector Debt Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated August 2013
Criteria for Rating Property funds, updated July 2013
PDM (Holdings) Limited (“PDM”) Rating Reports, 2011-2013
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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
PDM (Holdings) 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 PDM (Holdings) Limited with no contestation of the rating.
The information received from PDM (Holdings) Limited and other reliable third parties to accord the credit rating included the 2013 audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements for 2014, 1Q 2014 year to date management accounts, details of the property portfolio, corporate governance and enterprise risk framework, capital management policy, industry comparative data, regulatory framework and a breakdown of facilities available (including related counterparties). In addition, information specific to the rated entity and/or industry was also received.
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.
GCR affirms PDM Holdings Limited’s rating of A-(KE); Outlook Stable.