Johannesburg, 18 Jun 2014 — Global Credit Ratings has today affirmed the national scale ratings assigned to TPS Eastern Africa of A-(KE) and A2(KE) in the long term and short term respectively; with the outlook accorded as Stable. The rating(s) are valid until 06/2015.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) to TPS Eastern Africa based on the following key criteria:
TPS Eastern Africa’s (“TPSEA”) well-entrenched position within the East African hospitality industry is underpinned by a comprehensive, branded luxury business and holiday offering. Shareholder backing, mainly from the Aga Khan Fund for Economic Development (“AKFED”) is evidenced through continued capital and operational support.
Although Kenyan occupancy rates have remained subdued, revenues were bolstered by the inclusion of TPS (Uganda), and rose by 28% to a high of KShs6.8bn in F13. The operating margin, however, declined to 15.8% (F12: 16.1%), with profitability likely to be curtailed until the local tourism industry rebounds. Nonetheless, discretionary cash flows have been fairly sound, reflecting the resilience of the group’s diversified earnings base. Interest cover rose to 7.5x in F13 (F12: 5.4x), while cash interest cover was at a sound 7.6x (F12: 8.6x). Despite the aforementioned margin compression, debt serviceability metrics are projected to remain above minimum thresholds for strongly rated corporates.
Debt eased further to KShs1.8bn at FYE13 (FYE12: KShs2.1bn), which saw net gearing and net debt to EBITDA outperform budget, at 15% and 101% respectively (FYE12: 26%; 162%). Although TPSEA plans to raise new debt to fund development and ongoing capex, its medium term gearing metrics are not expected to exceed management’s limit of 40%.
Despite improvements in regional tourism, weaker than envisaged economic fundamentals, particularly in the Eurozone, coupled with the waning competitiveness of Kenya’s tourist attractions in the wake of heightened security threats will continue to restrict international tourist volumes in the medium term. TPSEA’s regional operations are also susceptible to adverse regulatory changes, including punitive taxes, high park fees and haphazard development approvals.
A rating upgrade is deemed unlikely until there is an improvement in tourist inflows into Kenya. Nonetheless, the timely bedding down of new capacity (further diversifying the geographic footprint) would be positively viewed. If coupled with adherence to conservative gearing and robust debt serviceability, this scale enhancement could exert upward pressure on the ratings. However, protracted project disruptions, or the failure to contain spend within budget, could drive higher than planned debt levels, negatively impacting the group’s credit risk profile. Further security threats or adverse political developments, materially curtailing tourist numbers and thus earnings, could also warrant a ratings downgrade.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (Jun/2009)
Long term: BBB+(KE); Short term: A2(KE)
Last rating (Jul/2013)
Long term: A-(KE); Short term: A2(KE)
Sector Head: Corporate & Public Sector Debt Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Corporate Entities, updated August 2013
TPS Eastern Africa Limited rating reports, 2009-2013
RATING LIMITATIONS AND DISCLAIMERS
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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, 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.
TPS Eastern Africa 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 TPS Eastern Africa with no contestation of the rating.
The information received from TPS Eastern Africa Limited and other reliable third parties to accord the credit rating included the 2013 audited annual financial statements (plus four years of comparative numbers), detailed 2014 financial budgets, 1Q 2014 management accounts, corporate governance and risk management framework, capital management policy, industry comparative data and regulatory framework, as well as a breakdown of facilities available and related counterparties.