Lagos, Nigeria, 11 June 2021 – GCR Ratings (“GCR”) has assigned a national scale long term indicative Issue rating of BBB+(NG)(IR) to Fidson Healthcare Plc’s proposed N4bn Series 1 Senior Unsecured Bonds with a Positive Outlook.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|N4bn Series 1 Senior Unsecured Bond||Long Term Issue||National||BBB+(NG)(IR)*||Positive|
*IR stands for Indicative Rating.
Fidson Healthcare Plc (“Fidson” or “the Issuer”) has filed an application with the Securities and Exchange Commission to issue bonds into the Nigerian capital market, under a N10bn Bond Issuance Programme and is in the process of raising an initial N4bn of Series 1 Senior Unsecured Bonds (“Series 1 Bonds”). The Series 1 Bonds shall constitute senior, direct, irrevocable, and unsubordinated obligations of the Issuer, and shall rank pari passu without any preference among themselves with all unsecured and unsubordinated indebtedness and monetary obligations of the Issuer, present and future, but in the event of insolvency, only to the extent permitted by applicable laws relating to creditors’ rights.
Fidson is a leading Nigerian pharmaceutical manufacturer, incorporated in 1995. GCR affirmed the national scale long and short term Issuer ratings of BBB+(NG) / A2(NG) assigned to the Issuer on the back of strong competitive position, a well-diversified products portfolio with significant market share in key products, sound earnings profile and moderate leverage metrics.
The Issuer and the Joint Trustees are entering into a covenant, pursuant to which the Issuer absolutely, irrevocably, and unconditionally undertakes to make punctual and full payment of all debts and obligations owed under the Programme.
Given that Fidson offers timely and full coverage of all payments due to the bondholders under the Series 1 Senior Unsecured Bonds, the Bonds bear the same default risk as the Issuer and would reflect similar recovery prospects to senior unsecured creditors in an event of default. As such, the long term rating for the proposed Series 1 Bonds is equivalent to the Issuer’s long term senior unsecured rating.
The Positive Outlook reflects GCR’s expectation of a likelihood for strong earnings growth over the medium term. Revenue appears well placed to post solid growth over the medium term, while there are some opportunities for margin enhancement through economies of scale and cost containment. Such earnings growth should support improved debt service coverage, even if gross debt increases.
Positive rating action could emanate if Fidson attains or exceeds earnings targets. This would support firmer cash flows and reduce its reliance on short term debt funding, as well as support stronger debt service coverage. A meaningful extension of the debt maturity profile would also help ease liquidity concerns.
The ratings could be downgraded if 1) debt spike substantially even if due to expansion 2) the Company is unable to refinance its short-term debt or the portion of short term debt rises further 3) there are material cost overruns that impact the attainment of earnings targets and increase the recourse to working capital funding.
|Primary analyst||Samuel Popoola||Analyst: Corporate Ratings|
|Lagos, Nigeria||Samuel@GCRratings.com||+234 1 9049462|
|Committee chair||Eyal Shevel||Sector Head: Corporate and Public Sector Ratings|
|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’s Nigeria Country Risk Score report, February 2021|
|GCR Nigeria Corporate Sector Risk Scores, February 2021|
|Fidson Healthcare Plc’s Issuer rating report, June 2021|
Fidson Healthcare Plc
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Long Term Issuer||Initial||National||BBB(NG)||Stable||January 2014|
|Short Term Issuer||Initial||National||A3(NG)|
|Long Term Issuer||Last||National||BBB+(NG)||Positive||June 2021|
|Short Term Issuer||Last||National||A2(NG)|
|Long Term Issue||Initial/last||National||BBB+(NG)(IR)||Positive Outlook||June 2021|
RISK SCORE SUMMARY
|Rating Components and Factors||Risk scores|
|Country risk score||3.75|
|Sector risk score||3.25|
|Management and governance||0.00|
|Leverage and cash flow||(0.50)|
|Total Risk Score||7.25|
|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.|
|Indicative Rating||An indicative Rating is denoted by an ‘IR’ suffix to indicate that a credit rating has been accorded based on review of final draft documentation and expectations regarding final documentation.|
|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.|
|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.|
|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.|
|Refinancing||The issue of new debt to replace maturing debt. New debt may be provided by existing or new lenders, with a new set of terms in place.|
|Short Term Rating||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 rating was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to Fidson Healthcare Plc and the Transaction Arranger. 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.
Fidson Healthcare Plc 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 Fidson Healthcare Plc and other reliable third parties to accord the credit rating included:
- 2020 audited annual financial statement, and prior four years annual financial statements;
- Management accounts for the period to 31 March 2021;
- Draft Programme Trust Deed;
- Draft Series 1 Pricing Supplements;
- Draft Shelf Prospectus;
- Draft Series 1 Trust Deed; and
- Legal Opinion on Claims and Litigations, by G. Elias & Co.