Lagos, 20 October 2021 – GCR Ratings (“GCR”) has assigned Marathon Asset and Fund Management Limited’s national scale long-term and short-term issuer ratings of B+(NG) and B(NG) respectively, with a Stable Outlook.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|Marathon Asset and Fund Management Limited||Long Term Issuer||National||B+(NG)||Stable Outlook|
|Short Term Issuer||National||B(NG)|
The ratings assigned to Marathon Asset and Fund Management Limited (“MAFM” or “the Company”) reflect its strong liquidity profile and moderate risk exposures over its two years of operations. However, these strengths are offset by its low competitive position as a start-up and the substantial level of related party exposures on the balance sheet.
MAFM is start-up asset management company, which commenced operation in the final quarter of 2018. Current operation is largely of private wealth management to high net-worth individual (“HNIs”) and issuance of product-based advances to small and medium scale enterprises and HNIs. Total assets (including funds under management) stood at c.N3bn as at unaudited August 2021 from N1.5bn at FY19. The company’s competitive position score is low, constrained by its relatively short-track record, small sized-status of asset under management (“AUM”), as well as limitation in product and business lines diversifications. As such, revenue streams are somewhat limited presently. While we expect the company to gain more traction as the business progresses, this is likely to evolve over the medium to long-term.
The board size and structure appear satisfactory for the business model and size of operation. However, management and governance is assigned a moderate score to reflect the related party exposures on both the funding and risk profiles.
Leverage exposures is considered intermediate, with GCR’s calculated leverage ratio ranging between 15-19% historically and stood at 11% as at end-August 2021. We expect this metric to moderate further as liability acceptances increases. However, should the company successfully evolve to full-fledged asset management operation, in which liability acceptances are no longer considered as borrowings, leverage position is likely to become positive, and supportive of the rating.
Overall risk exposure is considered moderate, underpinned by the fact that a substantial portion of MAFM’s assets are in risk-free Federal Government of Nigeria (“FGN”) securities. While the company is exposed to credit risk through its loan exposures (‘Mat structured assets’), the exposure level is considered moderate at 33% and subsequently 10% of the asset pool at FY20 and end-August 2021respectively. Going forward, we expect credit risk exposures to remain moderate, albeit the company displayed a significant concentration by obligors at FY20 due to the limited operational scale.
Funding and liquidity is considered in support of the rating. MAFM’s funding base comprises largely investment products targeted at high net-worth individuals, with maturities ranging between 30-365 days and can be rolled over at maturity. However, a high degree of concentration is noted in the sources of this funds, as the single largest investor accounted for about 40% of the funding base as at FY20.
Liquidity risk is considered minimal, given that MAFM’s assets are largely held in cash and risk-free tradeable instruments. Also, an analysis of the inflow and outflow of funds reflects a good coverage of 1.1x at FY20 and 1.6x at August 2021.
The stable outlook reflects our expectation that MAFM will continue to improve its market position, grow the AUM, and that the balance sheet will remain ungeared, while earnings will remain at modest level with minimal risk exposures over at least the next 12-18 months.
The ratings of MAFM may be reviewed upward following a significant and sustained improvement in earnings and competitive positioning. Also, reduction in related party exposures or sizeable increase in total portfolio size which results in it accounting for lower portion of the company’s operations. However, the introduction of interest-bearing loans may result in significantly higher leverage ratio and negatively impact the ratings.
|Primary analyst||Funmilayo Abdulrahman||Senior Analyst, Financial Institutions|
|Lagos, NG||Funmilayo@GCRratings.com||+234 1 904 9462|
|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 Financial Institutions, May 2019|
|GCR Ratings Scale, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, February 2021|
|GCR Financial Institutions Sector Risk Score, February 2021|
Risk Score Summary
|Rating Components & Factors||Risk scores|
|Country risk score||3.75|
|Sector risk score||2.00|
|Management and governance||-0.25|
|Capital and leverage||0.50|
|Funding and liquidity||1.00|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|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.|
|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.|
Salient Points of Accorded Ratings
GCR affirms that a.) no part of the ratings were 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 Marathon Asset and Fund Management 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.
Marathon Asset and Fund Management Limited participated in the rating process via telephonic 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 Marathon Asset and Fund Management Limited and other reliable third parties to accord the credit ratings included:
- Audited financial results as at 31 December 2020;
- Unaudited financial results as at 31 August 2021 and
- Other publicly available information.