Announcements Corporate Rating Alerts

GCR assigns AA+(ZA)(EL) ratings to Emira’s new secured note issuance; Outlook Negative

Credit Rating Announcement

Rating Action

Johannesburg, 7 September 2021 – GCR Ratings (“GCR”) has assigned a national scale long-term issue rating of AA+(ZA)(EL) to the EPF023 Notes issued by Emira Property Fund Limited (“Emira”, or “the REIT”). Concurrently, GCR has affirmed the long-term issue ratings of AA+(ZA)(EL) assigned to the existing Senior Secured Notes. The Outlook on the ratings is Negative. GCR has also withdrawn the EPF016 Notes following the full settlement upon maturity.

Rated Entity / Issue Rating class Rating scale Rating* Outlook / Watch
Senior Secured EPF016 Notes Long Term Issue National WD
Senior Secured EPF017 Notes Long Term Issue National AA+(ZA)(EL) Negative Outlook
Senior Secured EPF018 Notes Long Term Issue National AA+(ZA)(EL) Negative Outlook
Senior Secured EPF021 Notes Long Term Issue National AA+(ZA)(EL) Negative Outlook
Senior Secured EPF023 Notes Long Term Issue National AA+(ZA)(EL) Negative Outlook

*The Senior Secured Note ratings are based on an estimate of the expected loss in the event of an issuer default and are a function of the estimated probability of default of the issuer and the potential losses that may be incurred. As such, these ratings carry an “(EL)” suffix.

Rating Rationale

The proceeds from the issuance of the new EPF023 Notes have been applied to settle the EPF016 Notes upon maturity. Ultimately, the aggregate amount of secured debt outstanding remains unchanged as the new issuance of R130m is a substitution of debt and does not represent an additional draw down of debt.

The Senior Secured Notes rating has been reviewed in line with GCR’s methodology, Criteria for Secured Bond Expected Loss Credit Ratings, released in July 2021. The issue rating is derived by notching up from the national scale long term issuer rating assigned to Emira, depending on the recovery prospects. GCR’s modelled assumptions for the Senior Secured Group Notes, based on independent property values, support a stressed recovery rate of 100% from the security pool. Although GCR notes the additional pressure on property values across the commercial property sector, comfort was taken from the additional stress applied to the recovered property value. This recovery rate qualifies for a four-notch national scale uplift from the issuer rating.

Outlook Statement

The outlook on the ratings of the Notes is Negative, reflecting the outlook on the underlying issuer’s credit rating.

Rating Triggers

A downgrade of the issuer ratings would necessarily translate to a downgrade of the ‘EL’ ratings. Additionally, a deterioration in recovery prospects on the EL ratings could also result in downward rating pressure.

Analytical Contacts

Primary analyst Sheri Morgan Senior Analyst: Corporate Ratings
Johannesburg, ZA Morgan@GCRratings.com +27 11 784 1771
Committee chair Eyal Shevel Sector Head: Corporate Ratings
Johannesburg, ZA Shevel@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
GCR Rating Scales, Symbols & Definitions, May 2019
Criteria for Rating Real Estate Investment Trusts and Other Commercial Property Companies, May 2019
Criteria for Secured Bond Expected Loss Credit Ratings, July 2021

Ratings History

Emira Property Fund Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Long Term Issuer Initial National A-(ZA) Positive Outlook May 2011
Short Term Issuer Initial National A1(ZA)
Long Term Issuer Last National A(ZA) Negative Outlook May 2021
Short Term Issuer Last National A1(ZA)

Emira Property Fund Limited Senior Secured Notes

Stock Code Review Rating scale Rating* Outlook/Watch Date
EPF016 Initial National AA(ZA) Stable Sep 2018
Last National AA+(ZA)(EL) Negative May 2021
EPF017 Initial National AA(ZA) Stable Sep 2018
Last National AA+(ZA)(EL) Negative May 2021
EPF018 Initial National AA(ZA) Stable Oct 2019
Last National AA+(ZA)(EL) Negative May 2021
EPF021 Initial National AA+(ZA)(EL) Negative Sep 2020
Last National AA+(ZA)(EL) Negative May 2021

* Structured bond ratings are based on an estimate of the expected loss in the event of an issuer default and are a function of the estimated probability of default of the issuer and the potential losses that may be incurred. As such, the ratings carry an ‘EL’ suffix. Prior to the publication of GCR’s Rating Scales, Symbols and Definitions in May 2019, structured bond ratings did not carry the ‘EL’ suffix.

Glossary

Collateral Asset provided to a creditor as security for a loan or performance, also termed security pool.
Covenant A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.
Credit Risk The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.
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.
DMTN Domestic Medium-Term Note.
Issuer Ratings See GCR Rating Scales, Symbols and Definitions.
Issuer The party indebted or the person making repayments for its borrowings.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Loan To Value Principal balance of a loan divided by the value of the property that it funds. LTVs can be computed as the loan balance to most recent property market value, or relative to the original property market value.
Long Term Rating See GCR Rating Scales, Symbols and Definitions.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.
Proceeds Funds from issuance of debt securities or sale of assets.
Property Movable or immovable asset.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.

SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the ratings 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 ratings have been disclosed to Emira Property Fund Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

Emira Property Fund Limited participated in the rating process via face-to-face management meetings, tele-conferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Emira Property Fund Limited and other reliable third parties to accord the credit ratings included:

  • Breakdown of debt, net income, vacancies and arrears for secured property portfolio at July 2021;
  • latest property valuation reports;
  • final signed Applicable Pricing Supplement for the EPF023 Notes;
  • final signed legal opinion in respect of the issuance of the new note;


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