Johannesburg, 28 October 2021 – GCR Ratings (“GCR”) has assigned a national scale long term indicative issue rating of AA(NG)(IR) to Shelter Afrique’s proposed Series 1 Tranche A and Tranche B Senior Unsecured Notes (“the Notes”), with a Stable Outlook, to be issued on or about November 2021.
* Indicative rating.
** Total Series 1 issue size for both tranches up to ₦40bn.
The Series 1 Notes are being issued under Shelter Afrique’s (“the Issuer”) ₦200bn Domestic Bond Issuance Programme. The Issuer is permitted through a resolution of its Board of Directors dated 30th November 2021, to issue the Notes in various tranches, and under different terms and conditions as the board may deem fit, subject to the approval of the relevant regulatory authorities. Accordingly, the Notes will constitute direct, unsubordinated and unsecured obligations of the Issuer.
Repayment of the Notes obligations ultimately depends on the “performance of Issuer”. Shelter Afrique irrevocably and unconditionally undertakes to the Trustee the due and punctual payment in accordance with the Trust Deed of the principal of and interest on all Notes and of any other amounts payable by the Issuer under the Trust Deed. As such, cognisance must be taken of the Issuer’s credit profile.
The Notes will rank pari passu with all senior unsecured indebtedness and the claims of the Issuer’s creditors. Accordingly, the Notes have been accorded an indicative, public national scale long-term rating of AA(NG)(IR) in line with the Issuer’s rating.
The ratings on Shelter Afrique balance the geographical distribution of the development book, with a chequered history of timely member support and limited preferential creditor treatment, the relatively modest size and diversity of the organisation and the strong underpin of the mandate. The very robust capitalisation of the entity, weak earnings, poor asset quality (from the legacy book), moderate funding position versus supranational peers and adequate liquidity have also been factored into the ratings.
*The indicative rating assumes that the conditions in the Notes transaction documents will not change and will receive regulatory approval. GCR expects to issue a final rating upon receiving all signed and executed transaction documents in respect of the Notes.
The outlook on the Programme and the Notes are stable reflecting the rating outlook of the Issuer, which in turn reflects our opinion for capitalisation to remain at strong levels and cushion the risk of poor earnings. Alongside the above, asset quality and liquidity are expected to be stable following the successful completion of the debt restructuring agreement. However, financial sustainability risks and vulnerabilities remain over the medium term, with core earnings in negative territory and business stability yet to be proven.
The ratings may benefit from an improving track record of shareholder support in terms of increased capital subscriptions and timeliness of that support. In addition, a growing development book, building back status, more examples of preferential treatment, improved core earnings, better than expected impairments would also be viewed positively. The ratings could be lowered if the company does not regain business and financial sustainability, mandate track record continues to diminish on the back of a sustained reduction of the development book, substantial deterioration in capital, credit losses exceeding our expectations, and/or if there is an increase in funding and liquidity risks.
|Primary analyst||Simbarake Chimutanda||Financial Institutions Analyst|
|Johannesburg, ZA||SimbarakeC@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Supranational Institutions, May 2019|
|GCR Rating Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, October 2021|
|GCR Financial Institutions Sector Risk Score, September 2021|
Shelter Afrique (Issuer)
|Rating class||Review||Rating scale||Rating||Outlook||Date|
|Long and Short-Term issuer||Initial/last||International||B-/B||Stable||May 2021|
*Report updated on 14th December 2021 in regards to a correction on the date of the resolution by the Board of Directors.
|Balance Sheet||Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|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.|
|Diversification||Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks|
|Income||Money received, especially on a regular basis, for work or through investments.|
|Interest||Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.|
|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.|
|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.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Margin||A term whose meaning depends on the context. In the widest sense, it means the difference between two values.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|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 Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Short Term||Current; ordinarily less than one year.|
Salient Points 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 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.
Shelter Afrique (the Issuer) participated in the rating process via virtual 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 Shelter Afrique and other reliable third parties to accord the indicative rating included:
- The Issuer’s audited financial results as at 31 December 2020;
- The Issuer’s interim management accounts;
- Draft Programme Term Sheet;
- Draft Programme Trust Deed;
- Draft Series 1 Trust Deed;
- Draft Pricing Supplement; and
- Other related documents.