Announcements Rating Alerts Structured Finance

GCR affirms the ‘A1(ZA)(sf)’ rating assigned to the Callable Notes issued by iNkotha Investments (RF) Ltd

Rating action

Johannesburg, 4 May 2020 – GCR Ratings (“GCR”) has affirmed the national scale short-term Programme credit rating of ‘A1(ZA)(sf)’ assigned to the Callable Notes (the “Notes”) issued by iNkotha Investments (RF) Ltd (“iNkotha” or the “Issuer”) from time to time under the Issuer’s R10bn domestic call bond fund programme (the “Programme”).

Security Class Rating class Rating scale Rating Programme Limit
Callable Notes Programme National A1(ZA)(sf) R10,000,000,000

The rating accorded to the Notes relates to timely payment of interest and timely payment of principal. The rating accorded to the Notes excludes the issuance of notes with a maturity of greater than one year.

Rating rationale

GCR Ratings (“GCR”) assigned the above credit rating to iNkotha Investments (RF) Ltd based on the following key factors:

The Issuer is a Rand Merchant Bank (“RMB”) managed structured funding vehicle that advances rand denominated overnight call loans to South African corporates and South African subsidiaries/branches of international corporates (the “Obligors”). All the Obligors have long-term and short-term ratings or credit assessments assigned by GCR or any other recognised credit rating agency. The duration of the assets as well as that of the Notes is effectively matched as one day and therefore, there is no requirement for a liquidity facility or additional credit enhancement. To ensure that the credit quality of the portfolio is maintained at a level commensurate with the short-term rating, iNkotha will only advance call loans/bonds to obligors that have a minimum national scale credit rating of ‘A-(ZA)’.

As part of its ongoing monitoring of the performance of the transaction, GCR is provided with monthly investor reports and runs the rating factor model to assess the Weighted Average Credit Rating (“WACR”) of the portfolio on a monthly basis. The Administrator is responsible for maintaining the portfolio, with a Single Obligor Concentration Test (single largest obligor) maximum limit of 33%. The March 2020 investor report had the Single Obligor Concentration at 37% due to an obligor (Motus Holdings Ltd), having converted their uncommitted facility (call loan facility) to a committed facility. The recent market events may pursue other obligors to do the same. RMB, as the Administrator, seeks to balance the portfolio of assets (call loan facilities) by having proportionate facility amounts. GCR expect the Single Obligor Concentration Test to be in excess of its internal guidelines limit for the short term until another asset/obligor call loan facility has been sourced.

The WACR has been maintained at a level commensurate with a short-term rating of ‘A1(ZA)’ since transaction closing. There has been no significant rating or credit assessment migration of the obligor held in the asset portfolio.

In terms of the Transaction, there has been no change to the transaction documentation, nor have there been a breach of representation and warranties under the transaction documentation. None of the transaction parties have changed. GCR has been advised that no breach of covenants, nor any cross default or any event of default has occurred within the asset portfolio.

Analytical contacts

Primary Analyst Corné Els Senior Structured Finance & Securitisation Analyst
Johannesburg, ZA CorneE@GCRratings.com +27 11 784 1771
Committee Chair Yohan Assous Sector head: Structured Finance Ratings
Johannesburg, ZA Yohan@GCRratings.com +27 11 784 1771

Related criteria and research

Criteria for Rating Structured Finance Transactions – Sep 2018
Criteria for Rating Asset Backed Commercial Paper (ABCP) Rating Criteria – Nov 2018
Criteria for Rating Banks and Other Financial Institutions – May 2019
Criteria for Rating Corporate Entities – May 2019
Rating Scales, Symbols and Definitions – May 2019
iNkotha Investments (RF) Ltd Rating Announcement – May 2019
FirstRand Bank Ltd Rating Announcement – Aug 2019

Ratings history

Final Ratings: iNkotha Investments (RF) Ltd

Security class Stock code Review Rating class Rating Outlook Date
Callable Notes Various Initial Programme A1(ZA)(sf) n.a. Nov 2010
Last Programme A1(ZA)(sf) n.a. May 2019

Glossary

Administrator A transaction appointed agent responsible for the managing of a Conduit or a Special Purpose Vehicle. The responsibilities may include maintaining the bank accounts, making payments and monitoring the transaction performance.
Advance A lending term, to transfer funds from the creditor to the debtor.
Agency An insurance sales office which is directed by an agent, manager, independent agent, or company manager.
Asset/s A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Bond A long term debt instrument issued by either a company, institution or the government to raise funds.
Callable A provision that allows an Issuer the right, not the obligation, to repurchase a security before its maturity at an agreed price. The seller has the obligation to sell the security if the call option holder exercises the option.
Committed Facility A line of credit extended to a borrower that is guaranteed to be available for a specified period. The lender is obliged to lend the predetermined amount for the defined period under the terms of the agreement.
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.
Credit Assessment See GCR Rating Scales, Symbols and Definitions.
Credit Enhancement Limited protection to a transaction against losses arising from the assets. The credit enhancement can be either internal or external. Internal credit enhancement may include: Subordination; over-collateralisation; excess spread; security package; arrears reserve; reserve fund and hedging. External credit enhancement may include: Guarantees; Letters of Credit and hedging.
Credit Rating Agency An entity that provides credit rating services.
Default A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than 90 days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.
Facility The grant of availability of money at some future date in return for a fee.
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.
Issuer The party indebted or the person making repayments for its borrowings.
Liquidity Facility A facility provided to a structured finance transaction that will pay the Noteholders interest in the event that the underlying assets cash flows are inadequate.
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.
Loan A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
Market An assessment of the property value, with the value being compared to similar properties in the area.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
Obligor The party indebted or the person making repayments for its borrowings.
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.
Repayment Payment made to honour obligations in regards to a credit agreement in the following credited order: 3.) Satisfy the due or unpaid interest charges; 4.) Satisfy the due or unpaid fees or charges; and 5.) To reduce the amount of the principal debt.
Security One of various instruments used in the capital market to raise funds.
Short Term Rating A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.
Short Term Current; ordinarily less than one year.
Timely Payment The principal debt, interest, fees and expenses being repaid promptly in accordance with the contractual obligation.
Transaction A transaction that enables an Issuer to issue debt securities in the capital markets. A debt issuance programme that allows an Issuer the continued and flexible issuance of several types of securities in accordance with the programme terms and conditions.
Weighted Average An average resulting from the multiplication of each component by a factor reflecting its importance or, relative size to a pool of assets or liabilities.
Weighted The weight that a single obligation has in relation to the aggregated pool of obligations. For example, a single mortgage principal balance divided by the aggregated mortgage pool principal balance.

Salient Points 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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to the rated party. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings. The rated entity participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The information received from the entities and other reliable third parties to accord the credit rating included:

  • Monthly Investor Reports from April 2019 to March 2020.


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