Announcements Corporate Indicative Rating Actions Rating Alerts

GCR assigns an Indicative Rating of BBB+(NG)(IR) with a Positive Outlook to Fidson Healthcare Plc’s proposed N4bn Series 1 Senior Unsecured Bonds

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.

Rating Rationale

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.

Outlook Statement

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.

Rating Triggers

Given that the indicative rating is intrinsically linked to the Issuer’s long-term rating, any change in the rating assigned to the Issuer will directly affect the Bond rating.

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.

Analytical Contacts

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

Ratings History

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
Operating environment 7.00
Country risk score 3.75
Sector risk score 3.25
Business profile 1.00
Competitive position 1.00
Management and governance 0.00
Financial profile (0.75)
Earning performance 1.00
Leverage and cash flow (0.50)
Liquidity (1.25)
Comparative profile 0.00
Group support 0.00
Peer analysis 0.00
Total Risk Score 7.25

Glossary

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.
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