Johannesburg, 1 July 2015—Global Credit Ratings has affirmed the primary and special servicer ratings assigned to Real People Investment Holdings Limited of SQ2(ZA) and SQ2+(ZA) respectively; with the outlooks accorded as Negative.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above servicer quality (“SQ”)* rating(s) to Real People Investment Holdings Limited (“Real People”, “the group”) based on the following key criteria:
The servicer quality ratings of Real People reflect its adequate resource capacity, and stable internal control/technology environments. The primary servicer rating also reflects the group’s challenging origination/collection experience in unsecured consumer lending, and its diminished financial profile, while the special servicer rating considers its ability to collect arrear loans (as an agent or principal). The ‘Negative’ rating outlooks are synonymous with the group’s credit rating outlooks; given its level of business integration.
Shareholder support proved invaluable during F15, when a R385m recapitalisation was required. Corporate governance remained strong and was further bolstered by a board charter, but independence of board oversight reduced as representation of shareholder interests was prioritised.
Financial condition remains fragile, while the capital injection preserved risk absorption capacity, given a group loss of R323m in F15 driven by lower margins and higher provisions (including net primary portfolio impairments of R306m). Conservative cash management and constrained access to debt also limited financial flexibility. The group responded to these challenges by reducing loan issuance, tightening credit criteria, exiting loss-making businesses, and focusing on collections excellence.
Stable management/adequate staff levels support the business. Executive team stability in F15 resulted in strong institutional memory, supplemented by fresh eyes in the collections area. Management remained well positioned to effect strategy. Staff numbers fell following the group’s cost containment drive, but are adequate to support operations at modest origination levels.
Internal control and IT systems remain robust. Real People’s debtor management capability/capacity remains intact, with tested collection methods effected via industry standard IT systems. Overall, the group’s technological infrastructure supports stability, connectivity, data accuracy, and security.
Collections quality was mixed. Successful distressed collections (acquired/outsourced) were evidenced in F15, but higher collection costs reduced margins and profitability, while the impact of sub-standard origination persisted, in part as a result of consumer stress.
A recovery in the group’s market position, and financial profile, together with improved trading performance and/or revenue diversification, and portfolio collections levels (primarily principal collections), could have a positive impact on the ratings. However, lower than expected collections, further earnings volatility, diminished financial profile, evidence of significant systems or staffing challenges, and adverse regulatory changes could require negative rating action.
* Note that servicer quality ratings are classified as non-credit ratings (refer to GCR’s published rating scales and definitions).
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (June 2009)|
|Servicer quality (combined): SQ2(ZA)|
|Rating outlook: Stable|
|Initial rating (December 2013)||Last rating (October 2014)|
|Primary Servicer: SQ2(ZA)||Primary Servicer: SQ2(ZA)|
|Special Servicer: SQ2+(ZA)||Special Servicer: SQ2+(ZA)|
|Rating outlook/s: Stable||Rating outlook/s: Negative|
|Primary Analyst||Committee Chairperson|
|Omega Collocott||Jennifer Mwerenga|
|Sector Head: Financial Institution Ratings||Senior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Summary Criteria for Rating Structured Finance Servicers, updated February 2015
Real People servicer quality rating reports (2009-14)
Real People Investment Holdings Limited credit rating report (July 2015)
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 rating document.
The ratings were solicited by, or on behalf of, Real People Investment Holdings Limited, and GCR has been compensated for the provision of the ratings.
Real People Investment 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 ratings were disclosed to Real People Investment Holdings Limited with no contestation of/changes to the ratings.
The information received from Real People Investment Holdings Limited and other reliable third parties to accord the ratings included the latest available audited annual financial statements at 31 March 2015 (plus four years of comparative numbers), as well as detailed information related to the group, its subsidiaries and operations.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|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/or interest when due.|
|Creditworthiness||An assessment of a debtor’s ability to meet debt obligations.|
|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.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, 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.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|Impairment||Reduction in the value of an asset because the asset is no longer expected to generate the same benefits, as determined by the company through periodic assessments.|
|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.|
|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.|
|Margin||The rate taken by the lender over the cost of funds, which effectively represents the entity’s profit and remuneration for taking the risk of the loan; also known as spread.|
|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.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Rating Outlook||A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Securities||Various instruments used in the capital market to raise funds.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|