Announcements Corporate Rating Alerts

GCR Assigns Family Homes Funds Limited an Initial Issuer Rating of BBB-(NG); Outlook Stable.

Lagos Nigeria, 15 January 2021 — Global Credit Ratings has assigned national scale Issuer ratings of BBB-(NG) and A3(NG) in the long term and short term respectively to Family Homes Funds Limited, with the outlook accorded as Stable. The ratings are valid until November 2021.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Family Homes Funds Limited (“HFL” or “the Company”) based on the following key criteria:

The ratings reflect Family Homes Funds Limited’s status as a Federal Government of Nigeria-related entity, owned by Nigeria Sovereign Investment Authority and Ministry of Finance Incorporated. FHFL is a public purpose institution, saddled with the responsibility of promoting affordable housing in Nigeria. However, this rating consideration is counterbalanced by FHFL’s limited track record.

Furthermore, the real estate industry’s vulnerability to low per capita income levels and macroeconomic shocks, which drive significant cash flow volatility is also a downside risk. The attendant impact on the Federal Government’s fiscal position and Nigeria’s informal economy are expected to materially constrain demand for housing over the rating horizon.

FHFL has a short track record of barely four years. Reflective of its change in operating model, from real estate developer to financing, interest income now dominate earnings with less reliance on FGN securities related income. However, limited funding sources has constrained ability to scale up lending and achieve future targets.

Operations have historically been funded by Federal Government grants amounting to N65bn at 3Q FY20, which has been committed to lending, marketable securities and real properties. While these are yet to generate sufficient cash flows to enhance funding flexibility, FHFL is developing strategic partnerships with key industry players to support its operations.

FHFL’s liquidity assessment is considered satisfactory, enhanced by the unutilised committed facility of N3.5bn from FGN Stabilisation Fund and the strong likelihood of support from FGN for its operations.

The Company is gearing up for a Sukuk Bond Issuance, with the proceeds expected to be utilised to support the financing of the ongoing projects with some State Government in Nigeria. The fact that the proposed Sukuk bond Issue will be secured by an Irrevocable Standing Payment Order from the federal Ministry of Finance provide some level of comfort.

Successful development of the Company in line with its operating model, achievement of forecasts, as well as establishment of a strong financial track record would be positively considered. Conversely, a negative rating action may follow a weakened earnings generative capacity or a reduction in the likelihood of government support.

NATIONAL SCALE RATINGS HISTORY

Initial/new rating (November 2020)

Long-term: BBB-(NG)

Short-term: A3(NG)

Rating outlook: Stable

Last rating: n/a

ANALYTICAL CONTACTS

Primary Analyst

Femi Atere

Senior Analyst

femi@gcrratings.com

+234 1 9049462

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Corporate Entities, updated February 2018

Glossary of Terms/Ratios, February 2018

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT WWW.GLOBALRATINGS.COM.NG

SALIENT FEATURES 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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the ratings are valid till November 2021.

Family Homes Funds Limited participated in the rating process via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating/s has been disclosed to Family Homes Funds Limited.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

The information received from Family Homes Funds Limited and other reliable third parties to accord the credit ratings included:

– 2019 audited annual financial statement, and four years audited annual financial statements;

– A 9-month management accounts to 30 September 2020

– Internal and/or external management reports;

– A completed rating questionnaire containing additional information on Family Homes Funds Limited;

– Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties; and

– Information specific to the rated entity and/or industry was also received.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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