Announcements Corporate Rating Alerts

GCR affirms RA International’s national scale ratings at AAA(KE)/ A1+(KE) due to its robust funding profile

Rating Action

Johannesburg, 27 May 2021 – GCR Ratings (“GCR”) has affirmed RA International FZCO (UAE)’s national scale Issuer ratings at AAA(KE) and A1+(KE) for the long and short term respectively. The outlook on the ratings remains ‘Stable’.

Rated Entity / Issue

Rating class

Rating scale

Rating

Outlook / Watch

RA International FZCO (UAE)

Long Term Issuer

National

AAA(KE)

Stable Outlook

Short Term Issuer

National

A1+(KE)

Rating Rationale

The ratings accorded to RA International FZCO (UAE) (“RA Int”) balance the company’s very strong financial profile, against its small scale, customer concentration and the risk of operating in very challenging environments. Although COVID-19 did constrain income, RA Int’s earnings and cash flows remain solid.

RA Int’s revenue declined by around 7% in FY20, largely as a result of delays to construction projects. Certain projects were postponed by clients, while delays to others were caused by the inability of key operational and technical staff to travel. However, most projects have since resumed and RA expects this to support medium term income. More significantly revenue increased in both the integrated facilities management and supply business lines, as humanitarian and government projects were not impacted by the pandemic. To this end, GCR continues to view the stable annuity income, earned from a very high-quality client base as a key rating strength.

Although the delay to construction projects resulted in the EBITDA margin weakening to below 20% (the lowest in four years), it is expected to recover in FY21. The key constraint over the medium term is the disruption to the Mozambique project. RA Int has invested around USD25m in its camp to date, intended to host multinationals operating in the oil and gas sector in the North of the country. However, recent terrorist activity has resulted in the oil and gas projects in the region being halted, and all foreign staff withdrawn. Thus, no revenue is expected from Mozambique in FY21, compared to around USD10m that had been budgeted for. Calculating the impact, GCR expects a further decline in revenue during FY21, albeit that even without the project there remain a number of new contract opportunities that should ensure strong growth over the medium term.

With USD17.6m in cash at FY20, the company remains in a strong net cash position, underpinning its robust financial profile. Nevertheless, RA Int issued USD6.5m in medium term notes in Kenya during 2H FY20 to ensure it has sufficient resources to meet its expansionary opportunities. The remainder of debt relates to lease liabilities. RA Int also maintains substantial unutilised debt facilities, as well as project guarantee facilities. Debt facilities are concentrated with one international counterparty, albeit the uptake of the bond demonstrates some financial flexibility. The relatively large cash balance and unutilized facilities also support robust liquidity coverage of 4x-5x, notwithstanding assumptions of substantial capex over the medium term.

RA Intl has developed a unique business model that provides construction, facilities management and other services to a range of international organizations and governments in very challenging operating environments, where governance and financial systems are generally very weak. Contrasting the operating environment, almost all RA Int’s clients reflect strong credit quality, being the United Nations, and various governmental entities of the United States of America and the United Kingdom. Critically, all contract pricing and financial transactions are done in hard currencies, predominantly USD, and flow through international banks in the UAE.

RA Int has developed a strong reputation for bringing projects to fruition and servicing clients across several countries, thereby supporting a sound competitive position within its niche business segments. As a result, the company has been able to develop close relationships with various governments, aid agencies and large global engineering firms. Nevertheless, RA Int’s small scale is a rating constraint, with annual revenues still well below USD100m. While the increasing customer diversification is noted, RA Int remains heavily reliant on the UN for income, which does pose some concentration risk.

Outlook Statement

The Stable Outlook reflects GCR’s expectation that RA Int will continue to report strong earnings and a robust balance sheet over the medium term, notwithstanding some short term disruptions.

Rating Triggers

Positive rating action is dependent on the continued growth and diversification of the company, without materially impacting its client quality and the certainty of income.

Negative rating action may result from; 1) the company moving into a net debt position, whether to fund expansionary projects or acquisitions; 2) unforeseen operational challenges in one of the major projects that result in financial losses; and 3) any actions that result in reputational damage and a breakdown in relationships with key clients.

Analytical Contacts

Primary analyst

Eyal Shevel

Sector Head: Corporate Ratings

Johannesburg, ZA

Shevel@GCRratings.com

+27 11 784 1771
     

Committee chair

Susan Hawthorne

Senior Analyst: Insurance Ratings

Johannesburg, ZA

SusanH@GCRratings.com

+27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019

Criteria for Rating Corporate Companies, May 2019

GCR Country Risk Scores, March 2021

GCR Corporate Sector Risk Scores, April 2021

Ratings History

RA International FZCO (UAE)

Rating class

Review

Rating scale

Rating class

Outlook

Date

Long Term Issuer

Initial/ Last

National

AAA(KE)

Stable

June 2020

Short term Issuer

Initial/ Last

National

A1+(KE)

\

RISK SCORE SUMMARY

Rating components and factors

  

 

  

Operating environment

9.00

Country risk score

7.00

Sector risk score

2.00

 

  

Business profile

(1.00)

Competitive position

(1.00)

Management and governance

0.00

 

  

Financial profile

5.00

Earnings performance

0.00

Leverage and capital structure

3.00

Liquidity

2.00

 

  

Comparative profile

0.00

Group support

0.00

Peer analysis

0.00
   

Total Risk Score

13.00

 

Glossary

Cash Flow

The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.

Cash

Funds that can be readily spent or used to meet current obligations.

Covenant

A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.

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.

Diversification

Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.

Issuer

The party indebted or the person making repayments for its borrowings.

Leverage

With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.

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. 

Long Term Rating

See GCR Rating Scales, Symbols and Definitions.

Operating Cash Flow

A company’s net cash position over a given period, i.e. money received from customers minus payments to suppliers and staff, administration expenses, interest payments and taxes.

Rating Outlook

See GCR Rating Scales, Symbols and Definitions.

Short Term Rating

See GCR Rating Scales, Symbols and Definitions.

Short Term

Current; ordinarily less than one year.

Upgrade

The rating has been raised on its specific scale

SALIENT POINTS 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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The credit ratings have been disclosed to RA International FZCO (UAE). The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

RA International FZCO (UAE) participated in the rating process through management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from RA International FZCO (UAE) and other reliable third parties to accord the credit ratings included:

  • The Unaudited financial results to December 2020
  • Four years of comparative audited numbers
  • Full details of projects and income breakdown
  • full details of funding facilities

 



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