Announcements

GCR affirms Real People Investment Holdings Limited’s primary and special servicer ratings of SQ2(

Johannesburg, 13 Oct 2014 — 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.

Global Credit Ratings (“GCR”) expects to conclude its next ratings review of Real People Investment Holdings Limited (“Real People” or “the group”) by June 2015, once the group’s audited annual financial results for the year ended 31 March 2015 have been published.

SUMMARY RATING RATIONALE

GCR has accorded the above rating(s) to Real People based on the following key criteria:

The ratings affirmations reflect Real People’s adequate internal controls/systems, experienced management team (despite the changes in key management positions), servicing experience (as administrator and/or principal) in the domestic micro-lending and collections industry, and the fact that financial strength is one of several factors considered when according a servicer quality (“SQ”) rating.

The aforementioned strengths are balanced by the group’s weaker financial and operational condition, reflected in the downgrade of the group’s credit ratings (for more information, please refer to the Real People Credit Rating Announcement, dated 07 October 2014).

The rating also captures Real People’s collection performance, which can be split between: (i) Real People originated loans; and (ii) acquired delinquent or already defaulted loans. Regarding the former (loans originated by the group), the collection performance is under pressure, particularly in the group’s legacy general lending portfolio. Consequently, management has undertaken various remedial actions to improve performance/collections in this book. Regarding the group’s acquired books, the overall collection performance remains under some stress, although cognisance is taken of the improving receipting experience seen in the group’s new books purchased. We note, however, that the general decline in the group’s collection performance is largely due to adverse market conditions in the unsecured lending space, and is being experienced by most local microfinanciers/unsecured lenders.

The negative rating outlooks are synonymous with the group’s credit rating outlooks, given the level of service integration within the group. Also, the accorded outlooks consider the challenges that Real People may face over the short term to maintain acceptable performance/collections levels, given the increasingly challenging operating environment.

The negative rating outlook combined with the group’s fragile operating environment makes an upgrade unlikely in the near term. A further downgrade of the group’s credit rating(s), recurring losses (providing a weakened buffer to counter the inherent risk in its business model) and/or a deterioration in collection statistics, could exert downward pressure on the ratings.

NATIONAL SCALE RATINGS HISTORY

Initial rating (Jun/2009)
Servicer quality: SQ2(ZA)
Outlook: Stable

Last rating (Jun/2014)
Primary Servicer: SQ2(ZA)
Special Servicer: SQ2+(ZA)
Outlook: Negative

ANALYTICAL CONTACTS

Primary Analyst
Kurt Boere
Credit Analyst
(011) 784-1771
boere@globalratings.net

Secondary Analyst
Omega Collocott
Head: Financial Institution Ratings
(011) 784-1771
omegac@globalratings.net

Committee Chairperson
Marc Chadwick
Head: Insurance Ratings
(011) 784-1771
chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Summary Criteria for Rating Structured Finance Servicers, April 2014
Previous Rating Reports (up to June 2014)
Real People Financial Institution Credit Rating Reports (up to June 2014)
Real People Credit Rating Announcement (October 2014)

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.

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 credit rating/s has been disclosed to Real People Investment Holdings Limited with no contestation of the rating.

The information received from Real People Investment Holdings Limited and other reliable third parties to accord the credit rating(s) included the latest available audited annual financial statements as at 31 March 2014 (plus four years of comparative numbers), most recent year to date management accounts for the five months ended 31 August 2014, corporate governance and enterprise risk framework, reserving methodologies, capital management policy, industry comparative data and regulatory framework, and a breakdown of facilities available and related counterparties.

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.

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

Corporate Governance

The manner in which an entity is governed and decisions are undertaken.

Credit Rating Agency

A party that provides an opinion on the credit quality of assets, debt securities and companies.

Credit risk

Risk that a party to a contractual agreement or transaction will be unable to meet their obligations or will default on commitments. Credit risk can be associated with almost any transaction or instrument such as swaps, repos, CDs, foreign exchange transactions, etc. Specific types of credit risk include sovereign risk, country risk, legal or force.

Default

Failure to make loan payments on a timely basis or to comply with other terms/requirements as stipulated in the loan agreement.

Financial Institution

An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.

Financial Statements

Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time and its results of operations for a period then ended.

Income Statement

Summary of the effect of revenues and expenses over a period of time.

Inherent Risk

Inherent risk is the product of the impact of the risk on the objective(s) and the likelihood of the risk occurring should no management actions/controls be in place to mitigate the risk.

Liquidity Risk

Liquidity is the ability to fund increases in assets and meet obligations as they become due, without incurring unacceptable losses.

Rating Outlook

A rating outlook indicates the potential direction of a rating over the medium term, typically a one to two year period.

Sovereign Risk

The risk of default by the government of the country on its obligations.

GCR affirms Real People Investment Holdings Ltd’s primary and special servicer ratings of SQ2(ZA) and SQ2+(ZA)

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