Announcements Corporate Rating Alerts

GCR affirms Transcorp Hotels Plc’s Rating of A-(NG); Outlook Stable

Lagos, 20 August 2019 — Global Credit Ratings has affirmed the national scale ratings assigned to Transcorp Hotels Plc (“THP” or “the Company”) at A-(NG) and A2(NG) in the long term and short term respectively, with the outlook accorded as Stable. Concurrently, the national scale ratings accorded to the following Issuances were also affirmed:

• Series 1 N10bn Fixed Rate Bond: A-(NG), Stable Outlook
• Series 2 N9.8bn Fixed Rate Bond: A-(NG), Stable Outlook

The long and short term Issuer and Bond ratings are valid until June 2020.

RATING RATIONALE

Global Credit Rating Company Limited (“GCR”) has accorded the above credit ratings to THP based on the following key criteria:

The ratings reflect THP’s ability to maintain its market position as a leading brand in Nigeria’s hospitality industry, supported by the major renovation and facilities upgrade at Transcorp Hotel Abuja’s (‘THA’) and the subsequent improvement in pricing and occupancy rate. The available support to THP as a member of Transnational Corporation of Nigeria Plc, and the partnership with Hilton Worldwide Limited, is considered a rating positive.

Earnings concentration to a single property remains the major risk factor. This was evidenced in FY17, when room nights were impacted by the closure of the Abuja airport.

While revenue rose to a high of N17.4bn in FY18, a corresponding increase in direct cost and administrative expenses suppressed EBITDA and operating margins to remain in line with the pre-FY17 level. Revenue is expected to rise in FY19 following the completion of the THA refurbishments, which should lead to some margin enhancement. However, 1Q FY19 performance was below budget and suggests that margins are likely to remain within the FY18 level

.

Operating cash flows have been strong at N6.7bn in FY17 and FY18, supported by large working capital releases. However, GCR anticipates some working capital reserves as renovation are ramped up at THA. If not supported by the expected increase in EBITDA and thus cash generation, this could lead to some liquidity pressure.

Due to the cost overrun from the THA upgrade, gross debt rose to N31.7bn at FY18 and further to N33.4bn by 1Q FY19. Thus, gross and net debt to EBITDA remained elevated at 584% and 267% respectively. Similarly, net interest coverage was weak at just 0.8x (FY17: 0.8x), while operating cash flow to total debt coverage tapered down to 21% (FY17: 24%). GCR expects gearing metrics to improve gradually as capex tapers off and earnings are bolstered by the augmented THA operations.

Following refinancing activity in 1Q FY19, the proportion of debt maturing in FY19 reduced to 13%, (FY18: 31%). Nevertheless, THP does face some redemptions in FY20, for which refinancing must be sought. Positively, to ensure sufficient liquidity, THP has reduced its dividend.

Given that the Series 1 and Series 2 bonds are senior unsecured obligations of the THP, the bonds bear the same rating as the Issuer and any change to THP’s rating will directly affect that of the bonds.

Demonstrated ability to increase revenue and earnings on the back of the newly renovated THA, while reducing debt. Over the longer term the rating could improve if greater diversification of revenue sources is achieved. However, an economic slowdown or political instability, may impede performance of the core THA. Inability to reduce debt from the current high levels, or additional debt utilisation.

NATIONAL SCALE RATINGS HISTORY

Initial rating (August 2015)
Long term: A-(NG)
Short term: A2(NG)
N10bn Bond: A-(NG)
N9.8bn Bond: A-(NG)
Rating outlook: Stable

Last rating (October 2018)
Long term: A-(NG)
Short term: A2(NG)
N10bn Bond: A-(NG)
N9.8bn Bond: A-(NG)
Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Funmilayo Abdulrahman
Senior analyst
funmilayo@globalratings.net

Committee Chairperson
Dave King
king@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated February 2018
Transcorp Hotels Plc Rating Reports (2015-18)
Glossary of Terms/Ratios (February 2018)

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: . IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: . 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.COM.NG.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating process 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; d) the ratings are valid until June 2020.

THP participated in the rating process via teleconferences and other written correspondences. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings have been disclosed to Transcorp Hotels Plc with no contestation of the ratings.

The information received from Transcorp Hotels Plc and other reliable third parties to accord the credit rating included;
• the 2018 audited annual financial statements (plus four years of comparative numbers),
• revenue budget for 2019,
• unaudited management accounts to March 2019,
• trustees’ report on the bonds dated June 6, 2019

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.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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