Johannesburg, 24 June 2020 – GCR Ratings (“GCR”) has assigned national scale long term and short term issuer ratings to RA International FZCO (UAE) of AAA(KE) and A1+(KE), respectively. The outlook on the ratings is Stable.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|RA International FZCO (UAE)||Long Term Issuer||National||AAA(KE)||Stable Outlook|
|Short Term Issuer||National||A1+(KE)|
The ratings accorded to RA International FZCO (UAE) (“RA”) balance the company’s very strong financial profile against its small scale, customer concentration and the risk of operating in very challenging environments.
RA has developed a unique business model that provides construction, integrated facilities management and other services to a range of international organisations and governments in demanding operating environments. In this regard, RA’s operations are primarily in Somalia, Central Africa Republic, and South Sudan, with recent growth into Mozambique and Libya. The governance and financial weaknesses in these countries, which inherently impacts the ease of operations, does serve to limit RA’s credit quality.
Contrasting the challenging scope of operations is the strong credit quality of its major clients, being the United Nations, and various governmental entities of the United States of America and the United Kingdom. Critically, all contract pricing and financial transactions are done in hard currencies, predominantly USD, and flow through international banks in the UAE. Moreover, as the projects are mostly aid related, contracts are not subject to the same volatility that may be evident in the traditional construction and services industry. The low risk jurisdictions of major clients substantially counterbalances RA’s exposure to risky territories.
RA has developed a strong reputation for bringing projects to fruition and servicing clients in several countries, thereby supporting a sound competitive position within its niche business segments. As a result, the company has been able to develop strong relationships with various governments, aid agencies and large global engineering firms. Nevertheless, RA’s small scale is a rating constraint, with annual revenues still well below USD100m. While the increasing customer diversification is noted, RA remains heavily reliant on the UN for income, which does pose concentration risk.
RA’s revenue has nonetheless evidenced strong growth over the review period, and notwithstanding some pressure, margins remain resilient. Moreover, the company expects margins to widen as contract volumes pick up over the rating horizon. While FY20 earnings may be dampened by COVID-19 disruptions, this is not expected to have a long-term impact on the company.
RA reports a strong net cash position, with over USD21m in cash at FY19. The company also maintains substantial credit facilities, which are used to support contract tenders. To date, such facilities have not been drawn. Notwithstanding that RA is investigating additional funding facilities to improve financial flexibility, the company does not expect to report a geared position over the medium term.
The substantial cash reserves and unutilised committed facilities also serve to underpin a very strong liquidity position. Accordingly, GCR expects RA to be able to comfortably cover all its investment requirements from operating cash flows and existing resources over the next 24 months.
The Stable Outlook reflects GCR’s expectation that RA will continue to report strong earnings and a robust balance sheet in the medium term.
Positive rating action is dependent on the continued growth and diversification of the company, without materially impacting its client quality and the certainly of income. Negative rating action may result from; 1) a material increase in debt, whether to fund expansionary projects or acquisition; 2) unforeseen operational challenges in one of the major projects that results in financial losses; and 3) any actions that result in reputational damage and a breakdown in relationships with key clients.
|Primary analyst||Eyal Shevel||Sector Head: Corporate Ratings|
|Johannesburg, ZA||Shevel@GCRratings.com||+27 11 784 1771|
|Committee chair||Patricia Zvarayi||Deputy Sector Head: Corporate Ratings|
|Johannesburg, ZA||Patricia@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Corporate Companies, May 2019|
|GCR Country Risk Scores, May 2020|
|GCR Rating Scales, Symbols and Definitions, May 2019|
RA International Group Plc
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Long Term Issuer||Initial/ Last||National||AAA(KE)||Stable||June 2020|
|Short term Issuer||Initial/ Last||National||A1+(KE)|
RISK SCORE SUMMARY
|Rating Components & Factors||Risk score|
|Country risk score||7.00|
|Sector risk score||2.00|
|Management and governance||0.00|
|Leverage and capital structure||3.00|
|Total Risk Score||13.00|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Covenant||A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|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.|
|Income||Money received, especially on a regular basis, for work or through investments.|
|Interest Cover||Interest cover is a measure of a company’s interest payments relative to its profits. It is calculated by dividing a company’s operating profit by its interest payments for a given period.|
|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.|
|Operating Cash Flow||A company’s net cash position over a given period, i.e. money received from customers minus payments to suppliers and staff, administration expenses, interest payments and taxes.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Short Term||Current; ordinarily less than one year.|
|Upgrade||The rating has been raised on its specific scale|
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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The credit ratings have been disclosed to RA International FZCO (UAE). The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.
RA International FZCO (UAE) participated in the rating process through management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from RA International FZCO (UAE) and other reliable third parties to accord the credit ratings included:
- The audited financial results for December 2019
- Four years of comparative audited numbers
- Full details of projects and income breakdown
- Full details of funding facilities