Announcements Financial Institutions Rating Alerts

GCR Affirms Wema Funding SPV Plc’s Series 1 and Series 2 Bonds Rating of BBB-(NG); Outlook Negative

Lagos Nigeria, 20 August 2020 – Global Credit Ratings has affirmed the national scale credit ratings assigned to Wema Funding SPV Plc’s Series 1 and Series 2 Bonds of BBB-(NG); under the N50bn Debt Issuance Programme. The outlook is accorded a Negative. The ratings are valid until July 2021.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Wema Funding SPV Plc’s (“the Issuer”) Series 1 and Series 2 Bonds based on the following key criteria:

The Series 1 and Series 2 Bonds (“the Bonds”) were issued under Wema Funding SPV Plc’s N50bn Debt Issuance Programme (“DIP”). The Series 1 and Series 2 Bonds Issued under the DIP were undertaken in October 2016 and October 2018 respectively, with an aggregate sum of N23.97bn via the two Issues (Series 1 (N6.295bn) and Series 2 (N17.675bn)).

Wema Bank Plc (“Wema” or “the bank” or “the Sponsor”) is a mid-sized bank in Nigeria by balance sheet size and geographic presence. The bank has a long-term national scale credit rating of BBB-(NG) accorded by GCR, with a Negative outlook.

The bank has maintained an upward trajectory in profitability over the last three years, attaining a review period high N6.8bn in FY19. Performance in FY19 was supported by non-interest income, which grew 74.2% to N24.2bn (buoyed by growth in securities trading). Accordingly, return on average equity and assets improved to 9.8% and 0.9% in FY19 from 6.6% and 0.8% in prior year respectively.

The transaction entails the use of the proceeds of the issuance of Wema Funding SPV Plc Series 1 and Series 2 Bonds, to purchase (with up to 55% of the proceeds) senior subordinated bonds issued by the Sponsor. The remaining portion of the proceeds of the Issue (45%) are to be held in the Debt Service Payment Account (“DSPA”) and invested in Federal Government of Nigeria (“FGN”) Securities. All Subordinated Bonds’ debt servicing payments received from the Issue date are to be held in the DSPA and used to pay the coupon on the Bonds.

The ratings of the Bonds are derived by applying a notching approach starting from the senior subordinated debt credit rating of the Sponsor based on the proportion of the offer proceeds used for purchase of the Sponsor’s Subordinated Bonds, as well as the unsubordinated debt rating of the Issuer, in addition to the rating enhancement provided by the 45% of the Offer proceeds retained in the DSPA (invested strictly in risk free FGN Securities).

According to the Trustees performance reports on the Bonds, the Issuer has been meeting its obligations under the Bond Issues on a timely basis, with total coupon of N4.08bn and N4.38bn paid on Series 1 and Series 2 Bonds respectively from the respective allotment date up to 31 July 2020.

The accorded rating would be sensitive to positive rating action on the Sponsor. A breach of the Master Bonds Purchase Agreement by the Sponsor, non-compliance with covenants, and a downgrade of the Sponsor’s rating, amongst others, could trigger a negative rating action.

NATIONAL SCALE RATINGS HISTORY

Initial rating
Series 1 Bond (December 2016)
Long term: BBB-(NG)
Rating outlook: Stable
Series 2 Bond (December 2018)
Long term: BBB-(NG)
Rating outlook: Stable
Last rating
Series 1 & 2 Bonds (July 2019)
Long term: BBB-(NG)
Rating Outlook: Stable

ANALYTICAL CONTACT

Primary Analyst

Adeyinka Olowofela

Senior Analyst

yinka@gcrratings.com

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017

Global Structurally Enhanced Corporate Bonds Criteria, updated November 2018

Sponsor’s rating report (2020)

Glossary of Terms/Ratios (February 2016)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S 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://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLI WEB SITE AT: HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE ON THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT www.globalratings.com.ng.

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; c.) such rating was 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 as indicated by the applicable credit rating document.

The ratings were solicited by, or on behalf of, Wema Funding SPV Plc, and therefore, GCR has been compensated for the provision of the rating.

Wema Bank Plc 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 ratings above were disclosed to Wema Bank Plc with no contestation of/changes to the ratings.

The information received from Wema Bank Plc to accord the credit ratings included the Issuer’s 31 December 2019 audited annual financial statements, Sponsor’s 31 December 2019 audited annual financial statements (plus four years of comparative numbers), Sponsor’s 1H FY20 unaudited results, the Programme Trust Deed for the Debt Issuance Programme, the Programme Shelf Prospectus, the Series 1 and Series 2 Trust Deeds, the Series 1 and series 2 Pricing Supplements, the Master Bonds Purchase Agreement, Deed of Undertaking, Vending Agreements between the Issuer and the Sponsor, Vending Agreements between the Issuer and the Purchaser, as well as the Trustees performance reports, up to 31 July 2020.

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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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