Announcements

GCR affirms the servicer quality* ratings of Real People Investment Holdings Limited

Johannesburg, 5 March 2018 – Global Credit Ratings (“GCR”) has affirmed the primary and special servicer ratings accorded to Real People Investment Holdings Limited of SQ3+(ZA) and SQ2-(ZA) respectively; with the outlooks accorded as Stable.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above servicer quality (“SQ”)* ratings to Real People Investment Holdings Limited (“Real People”, “the group”), based on the following key criteria:

The servicer quality ratings of Real People reflect a stable financial condition following successful capital restructuring, amid high (albeit lowering) non-performing loans (“NPLs”) stemming largely from legacy assets, tempered by stable internal control/ technology environment. The primary servicer rating reflects ongoing challenges in unsecured consumer lending collection performance, offset by the group’s stable and improving financial profile. The special servicer rating considers Real People’s ability to collect on NPLs.

Business sustainability and financial condition are improving. Servicer quality analysis recognises that financial profile and profitability impact a servicer’s ability to retain key staff, maintain adequate systems, and fulfil its role in third party collections. The potential impact on servicing from uncertainties in these areas (and overall business sustainability) are of primary importance in assessing Real People’s servicer quality. In April 2017, the group’s issuer credit rating was downgraded to CCC(ZA) (Negative outlook) following the initiation of capital restructuring discussions with investors (concluded in December 2017). FY18 servicing performance has been broadly stable and improving, but GCR considers that the group’s weak profitability and funding/liquidity risks result in uncertainty in maintaining sustainability. A challenging operating environment further constrains this position.

Asset quality stabilisation was supported by write-offs. Capital/funding constraints combined with strict underwriting and asset impairments resulted in very modest loan origination and a decline in on-balance sheet and other serviced asset balances. Nonetheless, the early adoption of IFRS 9 by the group is expected to enhance yield generation resulting from revised valuations, however constrained by modest loan origination due to the hefty provisioning required.

Stable and competent management continued to support the group’s operations, collections competency and focus on restructuring in FY18. The capital restructuring provides incentives to management through reserves created for share ownership, thus ensuring stability in executive staff.

Internal control and IT systems remain robust. Real People’s debtor management capability/capacity is intact, collection methods reflect industry standards, and IT systems/technological infrastructure support stability, connectivity, data accuracy, security, and regulatory changes.

Collections quality remained relatively stable in FY18 (considering NPL and credit loss ratios, and arrear loan receipting), despite persistent regulatory challenges, and rising consumer stress and collection costs, with focus remaining on acquired and non-performing assets.

A demonstrated track record of improved earnings performance, improved asset quality trends driven by low credit losses and sound underwriting, and a comfortable capital buffer, would help strengthen Real People’s financial strength and positively impact the company’s ability to conduct servicing operations. A downgrade could follow group breach of debt covenants, funding and liquidity pressures that materially impact the group’s profitability and long-term sustainability.

* 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 (April 2017)
Primary Servicer: SQ2(ZA)   Primary Servicer: SQ3+(ZA)
Special Servicer: SQ2+(ZA)   Special Servicer: SQ2-(ZA)
Rating outlook/s: Stable   Rating outlook/s: Negative

ANALYTICAL CONTACTS

Primary Analyst   Committee Chairperson
Simbarake Chimutanda   Marc Chadwick
Credit Analyst   Sector Head: Insurance Ratings
(011) 784-1771   (011) 784-1771
simbarakec@globalratings.net   chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Summary Criteria for Rating Structured Finance Servicers, updated February 2018

Real People Investment Holdings Limited rating reports (2009-16)

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/RATING-SCALES-DEFINITIONS. 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 ratings 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 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 management meetings 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:

  • Audited annual financial statements for the year ended 31 March 2017 (plus five year forecasts);
  • Management accounts for 9 months ending 31 December 2017;
  • Four years of audited annual financial statements for the comparative periods 31 March 2013-16;
  • Collections and asset under management data to 31 December 2017; and
  • Detailed information related to the group, its subsidiaries and operations.

The ratings 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 STRUCTURED FINANCE GLOSSARY

Administration A debtor unable to pay a judgement of debt or who cannot meet its financial obligations and does not have sufficient realisable assets that can be attached in satisfaction of judgement or obligations. The debtor can apply for an administration order interims of the Magistrates’ Court Act 32 of 1944 (South Africa).
Asset An item with economic value that an entity owns or controls.
Capital The sum of money that is used to generate proceeds.
Credit A contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company
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.
Environment The surroundings or conditions in which an entity operates (Economic, Financial, Natural).
Income Money received, especially on a regular basis, for work or through investments.
International Scale Rating LC International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
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.
Long-Term Rating A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.
Market An assessment of the property value, with the value being compared to similar properties in the area.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
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.
Servicer A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations.
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.
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.
Yield Percentage return on an investment or security, usually calculated at an annual rate.

For a detailed glossary of terms please click here

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