Lagos, 03 February 2022 – GCR Ratings (“GCR”) has assigned a national scale long term indicative rating of A-(NG)(IR) to Presco Plc’s proposed up to N30bn Series 1 Senior Unsecured Bond, with the Outlook accorded as Stable.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook|
|Presco Plc’s up to N30bn Series 1 Bond||Long Term Issue||National||A-(NG)(IR)*||Stable|
*IR stands for indicative rating
The indicative rating assigned to the proposed N30bn Series 1 Senior Unsecured Bond reflects the long-term rating of the Issuer, namely Presco Plc, a leading Nigerian palm oil producer. GCR assigned a national scale long-term Issuer rating of A-(NG) to the Issuer with a Stable Outlook in February 2022. The rating balances Presco’s robust earnings trajectory, moderate gearing, and strong competitive position in the Nigerian palm oil production segment against the weaker assessment of its parent, Siat NV Belgium (“Siat NV” or “the Group”). (link to Issuer CRA)
Presco Plc is in the process of registering a N50bn Bond Issuance Programme (“the Programme”) with Securities and Exchange Commission, with up to N30bn expected to be issued in Series 1 Bond under the Programme, with an expected tenor of seven years, inclusive of a three-year moratorium on the principal amount from the issue date. The Series 1 Bond will feature a call option whereby the Issuer may elect to effect early redemption of the Bonds, either in part or in whole, from the expiration of 48 months from the issue date, in accordance with the provisions of the Series 1 Trust Deed. The principal redemption on the Series 1 Bond will be on an amortised basis, following the principal moratorium period or upon a call, while coupon payment will accrue from the issue date and be due and payable semi-annually in arrears, up to and including the maturity date.
The Series 1 Bonds will be direct, unconditional, senior, unsubordinated, and unsecured obligations of the Issuer and rank pari passu without any preference among themselves. The Bonds also rank pari passu with all other senior unsecured and unsubordinated obligations assumed by the Issuer other than those mandatorily preferred by law.
Being senior unsecured debt, the proposed Series 1 Bonds will rank pari passu with all other senior unsecured creditors of the Issuer. As such, the Bonds will bear the same national scale long term rating as that accorded to the Issuer. Accordingly, any change in the Issuer’s long term rating would impact the Bond rating.
The Stable Outlook reflects GCR’s view that Siat NV will sustain the recent return to profitability and stable cash flows and meaningfully reduce debt. GCR also expects that Presco will continue to demonstrate strong revenue growth and robust margins, which should cushion the spike in debt.
As Presco’s rating is currently constrained by its parent, a rating upgrade is dependent on a strengthening of Siat NV’s financial position, including 1) Siat NV’s ability to demonstrably sustain the recent improvements in earnings and net profits, 2) significantly reduce gross debt to more sustainable levels, 3) improve corporate governance deficiencies. This must be complemented by sound treasury management at Presco such that the 12-month liquidity coverage exceeds 2x and net debt to EBITDA moderates to the 1x-1.25x range.
A downward rating movement could result from 1) failure to address the concerns at Siat NV and renewed weak earnings performance, 2) a material escalation in debt, either at Presco or the Group level.
|Primary analyst||Samuel Popoola||Analyst: Corporate and Public Sector|
|Lagos, Nigeria||Samuel@GCRratings.com||+234 1 904 9462|
|Committee chair||Eyal Shevel||Sector Head: Corporate and Public Sector|
|Johannesburg, ZA||Shevel@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, January 2022|
|Criteria for Rating Corporate Entities, January 2022|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, December 2021|
|GCR Nigeria Corporate Sector Risk Scores, November 2021|
Presco Plc’s up to N30bn Series 1 Senior Unsecured Bond
|Rating class||Review||Rating scale||Rating||Outlook||Date|
|Long Term Issue||Initial/last||National||A-(NG)(IR)||Stable||February 2022|
|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.|
|Issuer Ratings||See GCR Rating Scales, Symbols and Definitions.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|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.|
|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 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 Presco Plc and the Transaction Arranger, Stanbic IBTC Capital 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.
Presco Plc and the Transaction Arranger participated in the rating process via 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 Presco Plc and other reliable third parties to accord the credit rating included:
- Draft Series 1 Trust Deed
- Draft Programme Trust Deed
- Draft Pricing Supplement
- Draft Programme Shelf Prospectus
- Draft Vending Agreement