Announcements Corporate Rating Alerts

GCR assigns a first-time national scale long and short term Issuer rating of BBB-(NG) / A3(NG) to Coleman Technical Industries Limited; Stable Outlook.

Lagos, 11 May 2021 – GCR Ratings (“GCR”) has assigned national scale long and short-term issuer ratings of BBB-(NG) and A3(NG) respectively, to Coleman Technical Industries Limited, with a Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
Coleman Technical Industries Limited Long Term issuer National BBB-(NG) Stable Outlook
Short Term issuer National A3(NG)

Rating Rationale

Coleman Technical Industries Limited’s (“Coleman” or “the Company”) ratings reflect its relatively strong position within the Nigerian cables and wires manufacturing sector, underpinned by continuous capacity expansion which has facilitated stronger earnings growth. However, the ratings are constrained by the relatively high gearing, and ongoing requirement for funding to drive expansion.

Coleman’s competitive advantages include its established operational track record and strong relationships with key vendors, albeit that concentration towards two major distributors who jointly account for about 35% of revenue is a rating constraint. On the back of ongoing investment in capex, Coleman has established itself as the dominant producer of aluminium and copper cables (installed capacity of c.100,000 tons per annum), with diverse product lines relative to other African peers. Thus, the Company has a c.10% market share in the Nigerian cables sector, with major competition being from imported finished products from Asia. GCR expects the successful completion of ongoing expansion projects to better position Coleman to compete favourably with imported products.

At the current rating level, GCR view of management and governance remains neutral despite the dominance of the Board by the owning family negatively (including the Chairman and CEO), given the presence of two independent directors.

Supporting the ratings, Coleman has maintained strong volumes-driven revenue progression over the review period, with 24.2% CAGR over the 5-years to FY20. Coleman is projecting an aggressive growth of about 3.5x in FY21, driven by the expected completion of the 11,000 tons/month (combined) backward integration project and the new fibre optic manufacturing plant, which are expected to help capture further high value demand opportunities in the power and telecommunications sectors in the medium term. GCR believes that even if these projects are not fully realised, the 70% leap in 1Q FY21 still provides a strong case for sustainable business growth for the full year and into FY22.

While EBITDA margins have been persistently impacted by volatile commodity prices, fluctuating between 16.8% and 33.6%, earnings are stronger than the level reported by the available comparable peers. GCR expects some margin enhancement to come from the introduction of higher margin products, greater economies of scale and cost savings upon the completion of the backward integration project.

Constraining the rating somewhat, Coleman has relied on debt to fund its expanding business. Debt rose to N13.8bn in FY20 and N14.9bn 1Q FY21, from N9bn in FY17. Exacerbated by the weakening in core earnings, net debt to EBITDA spiked to 532% at FY20 (FY19: 366%). The Company intends to raise an additional N30bn in FY21 to finance expansion and support working capital requirements, while refinancing short-term debt, resulting in projected gross debt more than doubling to N35.2bn at FY21. Assuming that strong earnings are maintained for the full year, GCR expects that the net debt to EBITDA will likely improve to a moderate range of 200%-250%. Discretionary cash flow coverage of debt and EBITDA coverage of net interests are weaker metrics, both trending well below the intermediate range. Looking ahead, GCR expects interest coverage to improve primarily underpinned by stronger earnings, but weak/negative cash flow coverage is likely to persist. Coleman’s diversified funding sources, including nine banks and government concessional facilities (40% of total debt) and the longer tenured debt profile do mitigate financing risk somewhat.

The liquidity assessment is neutral to the ratings. While Coleman has arranged sufficient funding sources to cover its capex and working capital requirements, coverage is only around 1x. New debt funding is anticipated in the short term, but should it not materialise, capex spend will be curtailed accordingly. GCR takes cognisance of the strong lending relationships and the fact most of the short-term debt are revolving. There is an all-asset debenture on Coleman’s factories, but these are mostly related to the short-term facilities which are generally below 30% of gross debt and around 20% of the total asset base.

Outlook Statement

The Stable Outlook is predicated on GCR’s expectation that Coleman will sustain a strong earnings trajectory on the back of an expanding production capacity and improved cost efficiencies. Accordingly, we expect leverage metrics to remain moderate, even with the planned increase in debt.

Rating Triggers

Positive rating action could result from the successful and timeous completion of the ongoing projects which translates to meaningful earnings growth and net cash flows. A successful debt issue which helps to refinance existing obligations, and further stretch the debt maturity profile would also be positively viewed. Conversely, the ratings could come under pressure if further earnings pressure manifests, resulting in further deterioration in credit protection metrics, higher leverage metrics and/or weaker liquidity assessment.

Analytical Contacts

Primary analyst Samuel Popoola Analyst
Lagos, Nigeria Samuel@GCRratings.com +234 1 904 9462
Committee chair Eyal Shevel Head: Corporate and Public Sector
Johannesburg, ZA Shevel@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Corporate Entities, May 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Nigeria Country Risk Scores, February 2021
GCR Nigeria Corporate Sector Risk Scores, February 2021

Ratings History

Coleman Technical Industries Limited

Rating class Review Rating scale Rating Outlook Date
Long Term issuer Initial/Last National BBB-(NG) Stable Outlook May 2021
Short Term issuer Initial/Last National A3(NG)

Risk Score Summary

Rating Components & Factors Risk scores
Operating environment 5.50
Country risk score 3.75
Sector risk score 1.75
Business profile 0.50
Competitive position 0.50
Management and governance 0.00
Financial profile 0.00
Earnings performance 0.75
Leverage and Cash flow (0.75)
Liquidity 0.00
Comparative profile 0.00
Group support 0.00
Peer analysis 0.00
Total Score 6.00

Glossary

Capital The sum of money that is invested to generate proceeds.
Cash Funds that can be readily spent or used to meet current obligations.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
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.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
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.

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

The credit rating has been disclosed to Coleman Technical Industries Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

Coleman Technical Industries Limited participated in the rating process via telephonic 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 Coleman Technical Industries Limited and other reliable third parties to accord the credit ratings included:

  • 2020 audited annual financial statement, and prior four years annual financial statements;
  • unaudited management accounts for the first quarter ended 31 March 2021;
  • Industry comparative data and a breakdown of facilities available and related counterparties;
  • Information specific to the rated entity and/or industry was also received;


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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.