Johannesburg, 30 Jun 2014 — Global Credit Ratings has affirmed the national scale ratings assigned to Real People Investment Holdings Limited of BBB(ZA) and A2(ZA) in the long term and short term respectively; with the outlook accorded as Negative. Furthermore, Global Credit Ratings has affirmed the international scale rating assigned to Real People Investment Holdings Limited of BB; with the outlook accorded as Negative.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) to Real People Investment Holdings Limited based on the following key criteria:
The ratings are constrained by Real People Investment Holdings Limited’s (“the group”) heightened level of business risk (shown by shortfalls in its capital and asset quality metrics), relatively high funding concentrations and its focus/exposure to the unsecured lending market/clientele. However, cognisance is taken of the group’s growing finance and collection franchise, good risk management practices and strong business model.
The current period proved to be amongst the most challenging in the group’s history, on the back of a tightening operating environment in South Africa. Simultaneously, the group underwent a significant change in strategic direction aimed at ensuring its continuing businesses are well aligned to the correction expected post the unsecured credit supply boom.
The change in the group’s strategy is deemed cautiously positive and should reduce the overall risk profile of its loan book through the gradual reduction and/or workout of its general purpose, unsecured loan/advances portfolio; however, such strategy is not without its share of caution.
While in previous years the group was in a capital accumulation cycle, in F14 the negative credit trend required substantial increases in provisioning levels and bad debt write-offs, which eroded the group’s ability to retain earnings. Consequently, the buffer between required and actual capital reduced to suboptimal levels in a moderate-high stress scenario.
The group’s credit metrics and protection factors came under considerable pressure, as asset quality volatility (acquired debt and arrears portfolios) bucked all intervention measures.
The group’s fragile operating environment increases the error margin on all forward looking scenarios. This, combined with the downturn in the group’s profitability and asset quality trends, makes an upgrade unlikely in the near term.
A ratings downgrade may be triggered if asset quality remains under pressure, given the challenging operating conditions, and/or the group’s recurring profitability continues to provide a weakened buffer to counter the inherent risk in its business model. Further negative rating pressure may result if the group fails to raise additional capital or is unable to gain access to sufficient market funding.
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|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (Nov/2011)||Initial rating (Dec/2013)|
|Long term: BBB(ZA); Short term: A2(ZA);||Long term: BB|
|Outlook: Stable||Outlook: Stable|
|Last rating (Feb/2014)||Last rating (Feb/2014)|
|Long term: BBB(ZA)||Long term: BB|
|Short term: A2(ZA)||Outlook: Stable|
|Outlook: Rating Watch|
Head: Financial Institution Ratings
Head: Corporate Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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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; c.) such rating was an independent evaluation of the risks and merits of the rated entity; 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 info received was considered adequate and has been independently verified where possible.
The credit ratings above 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 credit rating included the latest audited annual financial statements for March 2014 (plus four years of comparative numbers), most recent year to date management accounts to May 2014, 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.
GCR affirms Real People Investment Holdings Limited’s rating of BBB(ZA); Outlook Negative.